The AIG Bailout

Bill Sjostrom —  25 February 2009

A draft of my new paper entitled The AIG Bailout is now up on SSRN. Here’s the abstract:

On February 28, 2008, American International Group, Inc. (AIG), the largest insurance company in the United States, announced 2007 earnings of $6.20 billion or $2.39 per share. Its stock closed that day at $50.15 per share. Less than seven months later, however, AIG was on the verge of bankruptcy and had to be rescued by the United States government through an $85 billion loan. AIG’s stock currently trades at less than $1.00 per share.

The Article explains why AIG, a company with $1 trillion in assets and $95.8 billion in shareholders’ equity, suddenly collapsed. It then details the terms of the government bailout, explores why it was undertaken, and questions its necessity. Considering a likely legacy of AIG is increased regulation of credit default swaps, the Article concludes by describing the current regulatory landscape for credit default swaps and offers some thoughts on regulatory reforms.

You can download the paper here. If you do read it and have comments, please email them to me at sjostromw [at] nku [dot] edu. Regardless, I will be revising the paper in light of the latest developments once the details come out.