How AIG began losing billions
Share Now on:
TEXT OF STORY
Renita Jablonski: As we continue with Fallout: our coverage of America’s financial crisis, we turn to Washington. Later today, three former executives from AIG will testify on Capitol Hill about their company’s near collapse. This is what Lehman Brothers executives did yesterday. And AIG too can expect a couple dozen very angry members of Congress. Marketplace’s Steve Henn has more.
Steve Henn According to one accountant who’s reviewed AIG’s books, executives there sold billions in financial insurance or credit default swaps without really understanding what they were getting into.
These contracts guaranteed the value of mortgage-backed securities against default. And just over a year ago, executives at AIG said publicly they didn’t expect these deals to cost the company a dime.
Months later, AIG had to set aside a billion dollars to cover losses. Then $5 billion. Then in February, its accountant said AIG had a material weakness on its books. Basically the company had no clue what the downside was.
John Coffee is a securities law expert at Columbia University:
John Coffee: And this is exactly in the area where AIG later incurred its extraordinary losses.
By June, those losses were $14 billion. As of late last week, AIG had borrowed more than $61 billion from the federal government to cover the ballooning costs.
In Washington, I’m Steve Henn for Marketplace.
We’re here to help you navigate this changed world and economy.
Our mission at Marketplace is to raise the economic intelligence of the country. It’s a tough task, but it’s never been more important.
In the past year, we’ve seen record unemployment, stimulus bills, and reddit users influencing the stock market. Marketplace helps you understand it all, will fact-based, approachable, and unbiased reporting.
Generous support from listeners and readers is what powers our nonprofit news—and your donation today will help provide this essential service. For just $5/month, you can sustain independent journalism that keeps you and thousands of others informed.