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AIG Is Back Today, but What About Tomorrow?

NEW YORK ( TheStreet) -- In normal times a company like AIG (AIG - Get Report) is a money-making machine.

That's because insurance is a great business, and the product sells itself.

As an old college friend who later went to work for the company's property and casualty unit explained to me many years ago, it's basically a book-making operation.

When you buy insurance you bet that bad things will happen. The insurer is betting bad things won't. When the contract ends you lose your bet and the insurer keeps your money. When bad things do happen, they're supposed to pay out, but the odds are always with the house, and if they lose too many bets, they raise the odds on everyone.

Oh, and while the bet is on the bookie keeps your money and invests it for himself. Sweet.

Trouble is, AIG made some bad bets during the last decade. It insured collateralized debt obligations, or CDOs, guaranteeing the payments on tons of mortgages, rather than individual mortgage instruments. Rather than being pure bets, these were bets on bets the gambler facing them had no control over.

Lots of questionable mortgages got packaged into CDOs, and when those mortgages went bad, the entire economy collapsed, AIG along with it.

Former AIG CEO Maurice "Hank" Greenberg is still fighting charges that he caused the collapse. He blames Eliot Spitzer, then New York Attorney General, for having him fired in 2005, and says the bad CDOs were bought after he left. He's also in court over the 2008 bailout, saying it was an unconstitutional "taking" -- his Starr International Co. was AIG's largest shareholder at the time.

It's hard to write about AIG, even today, without talking about Greenberg and the bailout. It's all very Shakespearean. But regardless of how the law treats the case, and Federal Reserve chairman Ben Bernanke will be personally deposed to describe his part in it, the news today is it's in the past.

The new AIG story starts in 2009, when the government hired retired MetLife (MET) CEO Robert Benmosche to run the company. Benmosche simplified the operation, selling some big pieces of the firm in the process.
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