This Day On The Street
Continue to site right-arrow
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

AIG Bailout Details Don't Tell the Full Story

Stocks in this article: AIG GS DB

Since then, the government has extended tens of billions of dollars more to the troubled institution. It repeatedly justified those moves by saying that AIG's rescue was not meant to save the insurer, but the complex web of companies that were interlinked through the toxic credit-default swaps AIG issued. Those companies, AIG detailed Sunday, include Wall Street firms like Goldman Sachs (GS), Bank of America's (BAC) Merrill Lynch and Morgan Stanley (MS), as well as foreign banks like Societe Generale, Deutsche Bank (DB) and Barclays (BCS).

But it's not clear how valuation losses were determined, or whether some counterparties got better deals than others. Furthermore, AIG did not disclose its remaining exposure to the toxic CDS securities -- in other words, how much more money will be required to unwind all of the positions?

"The problem is nobody really knows," says Edward J. Grebeck, CEO of debt-market strategy firm Tempus Advisors. "The government is saying, 'Oh my God, it would have been a catastrophe if we had let them fail,' but that only tells one part of the problem. The government is not being very open and forthcoming as to what the remaining exposures are for AIG's financial products group."

While AIG has been trying to "entice" firms to cancel out their CDS positions, the incentives simply aren't there, says David Becher, a finance professor and fellow at the Center for Corporate Governance at Drexel University. Derivatives contracts are often structured so that the insurer can pay a fee to extract itself from the deal, but the cumulative price tag may be too enormous for AIG. With the government providing a steady stream of capital, banks have little incentive to bow out on their own.

2 of 4

Select the service that is right for you!

Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!


DOW 17,561.89 +205.02 1.18%
S&P 500 2,037.81 +24.92 1.24%
NASDAQ 4,709.2010 +64.8890 1.40%

Brokerage Partners

Rates from

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs