4 ms·
Comparing Lehman's to AIG is like comparing a ocean tanker to the ocean it travels through (or at the least the port system it uses). AIG was an assurer-of and
by powertower 11y ago
Comparing Lehman's to AIG is like comparing a ocean tanker to the ocean it travels through (or at the least the port system it uses).
AIG was an assurer-of and garantier-on just about everything financially related. Even when not directly, everything came back to it indirectly.
If it went down, the entire system would have to follow, including the economic value of the average person's bank account.
The banks could have been failed to some extent, but that was never an option for AIG.
AIG was such a safe bet, that during the height of the financial meltdown, brokerage accounts for "risk averse" clients where purchasing high yielding AIG bonds without so much as breaking a sweat.
- grandalf 11y agoIf the regulatory regime allows one insurance company to be responsible for underwriting so much of the economy's risk, then of course if regulators are wrong about the required amount of risk capital the firm should be required to hold, regulators are on the hook to nationalize it or to provide credit. Most of the post-depression financial regulations were intended to put barriers in place to large firm size/share, and it wasn't until this was eroded by the financial modernization act of 1999/2000 that AIG's growth was even possible. It's not that the outcome was a surprise, it was just low probability enough that everyone involved was willing to take the risk in exchange for the financial and career benefits that supporting the loosening of regulations offered. There still exist many other low probability events that could cause a similar disruption, in spite of the regulatory response to the credit crisis.