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AIG Financial Bailout:
American International Group (AIG) Inc. is one of the biggest insurers worldwide that was bailed out by the U.S. government in 2008. The American government took control of this company in deal worth $85 billion that reflected the intensity of its concern regarding the threat a collapse could pose to the financial system. As part of the deal, the government effectively obtained a 79.9% stake at the firm in warrants known as equity participation notes. The emergency loan from the Fed was spread out within a period of two years with an interest rate of Libor and 8.5%.
The security of the emergency loan was the company's assets that included the profitable insurance businesses of AIG. While this security provided some protection to the Fed even with the ongoing sinking of the markets, the taxpayers were to reap huge profits through the equity stake if the company rebounded. On the other hand, American International Group used the loan to govern the process of selling some of its businesses in an orderly way and minimal...
al., 2008).
Impact of the Bailout on the Industry:
The financial bailout of American International Group was a history development given that the firm was not directly regulated by the federal government. The bailout had a major impact on the financial industry and the entire economy because it helped in transforming the American financial system. Through the initiative, the American government was deeply involved in the insurance and housing industries that were largely affected by effects of the 2008 -- 2009 global recession. This was evident from the fact that the government seized control of mortgage-lending companies like Freddie Mac and Fannie Mae as they nearly collapsed.
By rescuing the company, it effectively meant that the government rescued Bank of America, Morgan Stanley, Merrill Lynch, and Goldman Sachs as well as other European banks from huge losses. The reason for such impact is that these financial institutions played the derivatives game with…
References:
Karnitschnig et. al. (2008, September 16). U.S. To Take Over AIG in $85 Billion Bailout: Central
Banks Inject Cash as Credit Dries Up. Retrieved May 9, 2012, from http://online.wsj.com/article/SB122156561931242905.html
Sarjanuddin & Mamat, M.I. (2009). Market Failure and Government Intervention. Retrieved May 9, 2012, from http://www.scribd.com/doc/47082775/Market-Failure-and-Government-Intervention
American International Group Inc. (AIG) is a world leader in insurance as well as, financial services that serves more than 70 million clients across the world. The company for many years has managed to remain confident in their strategy to leverage their financial strength and global franchise that continue to enable growth in both emerging and developing markets. The vision of the company is to be the world's first choice
Conclusion If AIG would not have been helped by the Federal Reserve, it is more than obvious that the financial group would have declared bankruptcy. Although the bailout reached an enormous sum, the action was justified. Given the current market conditions, an eventual collapse of AIG would contribute even more to the fragility of the financial market. Also, it would have led to a reduction of public wealth, and it would have reduced economic performance. The opinion of
President Clinton passed regulations that reformed the essence of the way banks can do business (Lal, 2010). These changes allowed banks to use their depositors money to invest in risky investments; also known as speculation. They had a range of new products to try to hedge their risks. One of these products was known as a derivative and AIG was the leader of the derivative business. Therefore, there was
, 2008). There are two formats of insurance coverage that AIG specializes in: 1. Auto Insurance 2. Travel Insurance Auto insurance The primary profits and insurance coverage offered by AIG for auto insurance services were through its subsidiary by the name of AIG Direct (can be accessed on aigdirect.com). The service package that they offered their clients included insurance for privately owned vehicles, motor bikes, commercially-owned vehicles and as well as the recreational transport
The Ethics of AIG’s Commission Sales 1 American International Group (AIG) had been a big player in the financial crisis of 2007-2009. The company had been selling credit default swaps and making a commission on the sales (Brooks & Dunn, 2018). AIG had not expected the market to turn south in subprime lending as quickly and devastatingly as it did. The result was disastrous for the global economy as many were left
AIG and the Impact of the "Insurance" Gambit In the marketplace leading up to the 2008 economic crisis, lenders, ratings agencies and insurance companies were working together to create wealth from bad debts (loans given to homeowners unlikely to pay). These debts most likely to default were bundled and sold in tranches to investors, who believed or at least allowed themselves to think (or did not even care to question) that