Report: AIG bailout to add on billions more

"CHARLOTTE, N.C. - Struggling insurer American International Group Inc. will receive up to $30 billion in additional federal assistance in the fourth government rescue of the company, a person familiar with the matter told The Associated Press on Sunday.

The new infusion is intended to prop up AIG — once the world’s largest insurer — as it is expected to announce $60 billion in quarterly losses early Monday, the source said on the condition of anonymity because the discussions are still ongoing.

The company, which is considered too large to fail, previously received about $150 billion in loans from the government, which now has an 80 percent stake in the company."

My understanding is that AIG was big in mortgage derivative credit default swaps; perhaps the most vulnerable of all “toxic assets”. As such, it’s the “canary in the mine”.

This does not necessarily tell us anything other than what we already knew; the most rarefied of derivatives are the riskiest of all, and that nobody can really predict how many of the mortgage-backed securities will turn out to be bad.

Still, it looks like the DOW is going to fall out of bed again.

Insurance companies and pension plans have always been big buyers of “fixed income” securities. Their actuaries can pretty well figure out future liabilities. They try to offset those predictions with predictable incomes. When you kick the income predictability out from under them, it throws all calculations off.

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