I don't think you are right to connect AIG financial derivatives trades with this, buyer purchased PMI is very different from CDS. Most of the major providers

I don't think you are right to connect AIG financial derivatives trades with this, buyer purchased PMI is very different from CDS. Most of the major providers don't seem to be bankrupt (MGIC, Genworth, RMIC, etc.). It would seem that this should have protected the banks, unless they were buying coverage for less than the loan amount. http://www.nytimes.com/2009/03/01/realestate/01Mort.html http://www.nytimes.com/2009/03/01/realestate/01Mort.html I think a key problem is that people were avoiding paying the PMI by getting piggyback loans, since the interest was deductible. However, the piggyback loans had greatly increased risk, particularly as they were subordinated to the 80% loans.