The Man Who Crashed the World (AIG)

http://www.703designs.com/sites/default/files/article.pdf

Awaits threatening email.

If you read this comment after today, expect the link to be dead.

-AIG FP was created in 1987 when Howard Sosin, former Drexel Burnham, created a model on how to value and trade interest-rate swaps

-The company to make money insuring these transactions could not be a bank (which would be bound by law to hoard unreasonable amounts of collateral), but needed AAA status: thus... an insurance company

-AIG stops sub-prime mortgage insurance business in 2005 after realizing that 95% of their mortgage-related portfolio is sub-prime

-Other firms instead jump into the lucrative market after 2004/2005... Wall Street underwrites 1.6 trillion $ in sub-prime and 1.2 trillion in Alt-A mortgages from 2004-2007

-AIG is bound by contract to provide collateral in case they lose AAA rating; as such legacy business (built up until 2005) traps them into bleeding collateral in the 2008 crash on their sub-prime credit default swap business

-In result AIG runs out of capital reserves to provide collateral

-By comparison, no money is lost on their corporate credit default swap business