Purchase Solution

AIG and the Financial Crisis

Not what you're looking for?

Ask Custom Question

AIG played a central role in the financial crisis by issuing swaps to investors in CDO tranches, promising to reimburse them for any losses on the tranches in exchange for a stream of premium-like payments. AIG was rated AAA in 2006. This credit default swap protection made the CDOs much more attractive to potential investors because they appeared to be virtually risk free, but it created huge exposures for the credit default swap issuers if significant losses did occur. Once investors lost faith in the quality of the protection offered by the CDS the demand for the risky tranches of CDOs fell off. This depressed the price of the underlying mortgage collateral. As the price of subprime mortgage collateral dropped the capital positions of financial institutions that were holding tranches of CDOs fell.

True or false and why?

Purchase this Solution
Solution Summary

This solution explains if the AIG question listed is true or false, and explains why.

Solution Preview

TRUE

And the rest of the story is that as investors began to lose confidence, investors with holdings in other large companies in the market also began pulling out, and this snowballed into an already bad situation. AIG also was charged along with Goldman Sachs in the CDO scandal because it was discovered that Goldman Sachs ...

Purchase this Solution
Free BrainMass Quizzes
Transformational Leadership

This quiz covers the topic of transformational leadership. Specifically, this quiz covers the theories proposed by James MacGregor Burns and Bernard Bass. Students familiar with transformational leadership should easily be able to answer the questions detailed below.

Motivation

This tests some key elements of major motivation theories.

Writing Business Plans

This quiz will test your understanding of how to write good business plans, the usual components of a good plan, purposes, terms, and writing style tips.

Introduction to Finance

This quiz test introductory finance topics.

Social Media: Pinterest

This quiz introduces basic concepts of Pinterest social media

View More Free Quizzes
Related BrainMass Solutions

  • Financial Risk Management: Economic Downturn 2007

    in the financial crisis that started in 2007.

  • Deregulation and Financial crisis

    Give examples if necessary. 3 Please comment on the impact of Financial Crisis from the perspective of firms, and investors, and social perspectives. Do you think the government should bail out the large financial companies like AIG?

  • Mark-to-Market Accounting with AIG

    It was concerned that if AIG declared bankruptcy, then individuals holding personal insurance as well as other investments would have no insurance and would be in danger as the financial and liquidity crisis deepened.

  • liquidity programs

    The failure of AIG would have had significant spillover effects and intensified the already severe crisis, worsening global economic conditions.

  • Financial crisis

    Give examples if necessary 3 Please comment on the impact of Financial Crisis from the perspective of firms, and investors, and social perspectives. Do you think the government should bail out the large financial companies like AIG?

  • Benefits of the Bailout of AIG

    577532 Benefits of the Bailout of AIG If AIG had been allowed to fail, what type of financial institutions would have been adversely affected? That is, who benefited from the bailout of AIG?

  • Types of work behaviors did AIG intend to encourage

    Rapidly mounting financial losses had been occurring in the Financial Products unit for some time. Consequently, AIG decided to unwind the business and shut it down.

  • Fiscal Policy and the Economic Downturn

    The Dodd Frank Act and the Volcker rule are major pieces of oversight legislation that have been passed in the wake of the financial crisis.

  • What is AIG's stance on the allegations they face from the SEC?

    Because of the company’s decision, AIG is now in a serious problem with financial investigation bodies.

View More Related Solutions