AIG Stock: What You Need to Know

AIG: Before the Fed's Big Move

From AIG Meets With Fed; Shares Continue Dive:

If AIG does not secure fresh funding by Wednesday [Sept. 16], it could follow Lehman Brothers' (LEH Quote)into bankruptcy, the [Wall Street] Journal said.

The paper reported Tuesday that a New York Federal Reserve spokesman confirmed a second day of meetings on AIG were underway at the Fed's lower Manhattan headquarters. He declined to comment on a CNBC report that a federal bailout was in the works for the company.

But federal officials seemed reluctant to aid AIG with a bridge loan from Fed, which the insurer sought in Monday's meeting at the Fed.

"What is going on right now in New York has got nothing to do with any bridge loan from the government," Treasury Secretary Henry Paulson said in a Washington, D.C., news conference Monday, noting the talks in New York revolved around a private sector solution to the crisis.

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Plus, don't miss:

AIG Plans Major Restructuring: Report (Sept. 15: Managers at the nation's No. 1 insurer were trying to put together the plan Sunday afternoon and present it to the company's board for approval, the [Wall Street] Journal reported, citing people familiar with the situation.)

AIG Buys Time, as New York Loosens Regs (Sept. 15: AIG will be allowed to use $20 billion in assets held by subsidiaries to help stay in business, New York Gov. David Paterson said in a press conference Monday. The insurer, which has already raised $20 billion in fresh capital in 2008, on Sunday turned down an offer from private equity firm J.C. Flowers & Co. that would have allowed the investor to acquire AIG for $8 billion under certain circumstances, the [Wall Street] Journal reported.)

Analysts' Upgrades, Downgrades: AIG (Sept. 15: AIG downgraded at Merrill from Buy to Neutral... Company will face higher losses and try to obtain dilutive financing.)

From When an Insurance Company Fails:

American International Group is a holding company that owns 71 domestic insurance companies that sell virtually every type of coverage, including life, health, annuities, property, auto, aircraft and product liability.

Insurance companies are regulated at the state level by the insurance department in which the individual subsidiary is based. When an insurance company gets into trouble, the state regulator steps in and takes control of it.

"The state insurance commissioner effectively becomes the CEO of the company," explained Joseph Belth, professor emeritus of insurance at Indiana University and editor of The Insurance Forum.

If the regulator believes that the company has good assets and a strong book of business, the regulator will direct it to be rehabilitated.

"The commissioner seeks to rehabilitate the company and minimize losses to policyholders, which could include selling all or parts of the company or modifying policy structures," Belth said.

In the case of policy modifications, i.e., lowering of guaranteed interest rates or increasing premiums, Belth said that a court order would be required, and affected parties would have input.

If the company is in dire financial shape, the regulator will take it over and immediately begin liquidating its assets.

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From AIG, States Work Together to Raise Cash:

American International Group is getting help from the insurance commissioners of New York and Pennsylvania in raising cash by swapping its subsidiaries' liquid assets for those that are difficult to convert into cash held by the parent company.

"If you have a policy with an AIG insurance company, they are solvent and have the capability to pay claims," said Sandy Praeger, president of the National Association of Insurance Commissioners and Kansas insurance commissioner, in a press release today. "Our job is to ensure they continue to have the ability to pay."

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From Cramer: The Market's Fate Rests With AIG (Video, Sept. 16):

Cramer: "There are only two companies that can't fail: AIG and Citigroup (C Quote)... Unfortunately, it's not the U.S. government that needs to help AIG, it's Europe... AIG has such terrible disclosure. We have no idea who their customers are... AIG insured a huge amount of financial products in Europe when they felt that in 2005 that this market was going down... and they don't have the capital to make good on those... I could see Citigroup failing and mean less to the market than AIG... The people in government -- I have come to believe -- are far less sophisticated... to the ramifications of AIG... AIG is a huge, huge liability."

To watch the video, click the player below:

From Cramer: SEC Played a Big Role:

Let's take AIG. Here's a company that has lots of liabilities but also lots of assets. While its liabilities are liquid -- meaning it has to pay them off quickly if there is an event that triggers payment -- its assets, such as its great life insurance and aircraft leasing businesses, are illiquid. AIG couldn't just turn around and sell them.

Still, new management came in at AIG and decided to work on a plan, meant to be revealed at the end of September, that would detail asset disposals that could make the company a more solid credit with an ability to make good on their policies on financial instruments. It would also be able to access capital in the markets once those illiquid assets were disposed of.

Unfortunately, what AIG didn't know, and the SEC didn't either, is that AIG the stock is different -- and worse -- than AIG the company. The stock could not be insulated with a firebreak from short-sellers who knew that if you broke the stock's back, you broke the company's back.

Read the full version of Cramer: SEC Played a Big Role.