The bailout occurred exactly one day after U.S. It also had veto power over all important decisions, including asset sales and payment of dividends. ![]() That gave it the right to replace management, which it did. In return, the Fed took ownership of 79.9 percent of AIG's equity. On September 16, 2008, the Federal Reserve provided an $85 billion two-year loan to AIG to prevent its bankruptcy and further stress on the global economy. It left it without the cash to pay the swap insurance. As stockholders got wind of the situation, they sold their shares, making it even more difficult for AIG to cover the swaps.Įven though AIG had more than enough assets to cover the swaps, it couldn't sell them before the swaps came due. As the mortgages tied to the swaps defaulted, AIG was forced to raise millions in capital. ĪIG's swaps on subprime mortgages pushed the otherwise profitable company to the brink of bankruptcy. Financial institutions around the world were also major holders of AIG's debt. For example, the money-market fund industry invested in AIG debt and securities. ĪIG was so large that its demise would impact the entire global economy. ![]() If AIG went bankrupt, it would trigger the bankruptcy of many of the financial institutions that had bought these swaps. ![]() These swaps insured the assets that supported corporate debt and mortgages. How did a boring, ultra-safe insurance company become one of the largest bailouts in the 2008 financial crisis? AIG had become a major seller of credit default swaps in an attempt to boost its profit margin.
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