CNBC's Trish Regan reported from the floor of the New York Stock Exchange for NBC that AIG represented "the biggest quarterly loss of a public company in history." There were two questions that reporters attempted to answer. Why is AIG losing so much money? Why is the government refusing to allow it to fail? ABC's Betsy Stark gave us the Treasury Department's official line in answer to the second: "Given the systemic risk AIG continues to pose, the potential cost to the economy of government inaction would be extremely high."
ABC's John Berman took us back to the bursting of the housing bubble to explain why AIG has lost so much. It sold "a type of insurance--so-called Credit Default Swaps--to banks and financial institutions that invested in the mortgage market. If the bank started losing money on mortgages, AIG would help cover those losses. AIG was raking in huge money selling this insurance, betting and betting big that the economy would keep humming along." The bets went wrong and "the house--AIG--could not pay."
So why not let AIG go broke? Nancy Cordes put it this way in her CBS explainer What it Means: "AIG is at the hub of the global financial system, insuring pensions, money markets, banks and insurance companies against losses in 130 different countries. If AIG fails the whole wheel could deflate." Booz & Co economist Seamus McMahon used a different analogy for ABC's Stark: "AIG is at the center of a spider's web. The filaments, the strands go all over the world into thousands of organizations. If there is a tear in the center, the whole web collapses."
ABC's Berman summed up the situation as "an unpleasant choice between unsavory scenarios." His colleague Stark suggested "we could be talking about trillions rather than billions."
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