US Financial Crisis: The Bailout of AIG
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Code : ECC0018
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Region : Global |
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Abstract: The growth of subprime mortgage market resulted in development of numerous financial instruments – meant to diversify the risk – which were grossly incomprehensible. The alphabet soup of financial derivatives is largely blamed for the US Financial Crisis and AIG, for its part insured all the instruments without even evaluating the risk. The case attempts to explain the concept of Credit Default Swaps (CDS) and examine the role of American International Group (AIG) in the subprime context. The case also describes how these instruments were insured by AIG, making the buyers of the instruments believe that they bear no risk at all. When the disguise was revealed, AIG was forced to pay for all their worth. The risk at AIG resulted into a huge $441 billion worth of CDS, which brought the company to the brink of bankruptcy. The company could not fund all the risk and the bubble built around these instruments burst into a global financial crisis. |
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Pedagogical Objectives:
Keywords : Financial Crisis, Subprime, AIG, Bailout, CDS, MBS, Investment Bank, Federal Reserve, Insurance, Portfolio, Financial Derivatives, Henry Paulson, AIGFP, Super senior CDS portfolio
Contents :
» History of AIG
» Spread of Global Financial Virus
» Role of AIG in Subprime Crisis
» Collapse of Subprime Market: Its Effect on AIG
