I understand why Bear Stearns a Lehman are biting the dust, but where does AIG fit in? Objective, factual responses only please. Thanks.
AIG is one of the worlds largest insurers and as such it was heavily involved in guranteeing lots of contracts a case in point is some of the ETF's i bought the counterparty to ETFS was AIG on some of the contracts so as AIG stock price falls their credit rating declines and it can trigger all sorts of redemption clauses implicit in these contracts legal speak. Settling up at speed is diffciult when you have to unwind large positions especially given the complexeity of many of these contracts and can casue a liquiity crucnh and a freezing , you tend to get bad prices when you are forced to close out. Many contracts also have early close penalty clauses I think so you can see any fall in AIG stock price can trigger a whole cascade of problems which is why the fed felt it necessary to bail them out.
Here's an article you might like: http://www.financialsense.com/fsu/editorials/amerman/2008/0917.html
Well, you know now. This is what happens when you combine boundless greed with a total lack of regulation.