Next big question: Can AIG hold on?
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KAI RYSSDAL: Bob got us going into insurance. And that’s what Wall Street’s focusing on now. Specifically…the American International Group — or AIG. It’s the world’s largest insurance company. And it, too, is being torn apart by losses related to the subprime mortgage meltown. AIG’s an insurance company. So it’s problem is the policies it wrote protecting *other institutions against losses. The insurer got some breathing room today courtesy of the State of New York. Governor David Paterson said AIG will be allowed to borrow billions of dollars from its subsidiaries. But the question on Wall Street is whether AIG’s going to survive the week to enjoy that money. And what happens if it doesn’t? Marketplace’s Jeremy Hobson has that story from New York.
JEREMY HOBSON: AIG sells insurance to more than 70 million customers worldwide.
It got into trouble because one of its divisions insures against losses in capital markets. They’re much harder to predict than losses due to, say, weather or a fire.
DONN VICKREY: They took on risks that they just didn’t understand.
That’s Donn Vickrey of Gradient Analytics. He says while insurers can easily determine potential damages from, say, hurricanes…
VICKREY: The structured finance market is relatively newish, and unfortunately there was not enough data to properly model the risks.
Losses in mortgage-related securities have brought AIG crashing down. Its stock is down 80 percent this year.
Its credit rating has also fallen and that’s made it more difficult to borrow the money it needs.
Treasury Secretary Henry Paulson held a press conference today at the White House. He sounded reluctant to step in and help.
HENRY PAULSON: What is going on right now in New York has got nothing to do with any bridge loan from the government. What is going on right now in New York is a private-sector effort.
Paulson wants other Wall Street institutions to lend to AIG.
Matthew Kaufler of Clover Capital Management says allowing AIG to collapse is unthinkable.
MATTHEW KAUFLER: When you see a company like AIG start to slam into the wall, it has a negative effect on confidence, and confidence is absolutely crucial to the credit markets.
Confidence in AIG is already plummeting. Its stock value is now less than half what it was this morning.
In New York, I’m Jeremy Hobson for Marketplace.
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