Sunday, March 2, 2008

AIG drops on recods loses…OMG!

AIG Drops on Biggest Loss in Firm's 89-Year History

American International Group Inc., the world's largest insurer, fell in New York trading after reporting the biggest quarterly loss in its 89-year history. It has to be pretty bad if they post bigger loses than during Great Recession!

Posted by assurbanipal @ 09:25 AM (581 views)
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3 thoughts on “AIG drops on recods loses…OMG!

  • dohousescrashinthewoods says:

    Probably the most important story on here.
    Why?

    If the insurers fail, the products they insure are worthless.
    If the products they insure are worthless, the funds holding the products are bankrupt.
    If the funds are bankrupt, the banks make big losses.
    If the banks make big losses, they won’t be lending.
    If the banks won’t lend, there will be little or no credit for you and me.
    If there is no credit, there are no mortgages.
    If there is no mortgage, there is no house-buying.
    If there is no house-buying, there is no housing market.
    QED, HPC.

    In a sentence: if the insurers fail, the credit-crunch we are now having will be small-fry in the face of what comes next.

    Looking back a week or so, does anyone believe Moodys AAA rating of Ambac? They have already shown themselves to be corrupt by their AAA ratings of sub-prime products. Fillips the stock market nicely for the eilite, but doesn’t change the real situation.

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  • Excellent point made by dohousescrashinthewoods note that in the UK the Financial Services Authority has turned the spotlight on the insurance industry as it tries to seek out the next problem waiting to explode in the financial industry following the sub-prime mortgage crisis. The City regulator has written to insurance companies asking for details of their illiquid assets and credit derivatives as it tries to uncover where the risks lie in the financial system. Insurers are being asked for details of their exposure to credit derivatives – complex financial instruments that have been at the heart of the current financial turmoil. They are also being told to outline how they are valuing these assets at a time when financial markets have frozen up, making it difficult to be confident about their precise value.

    Full story from last Friday’s Guardian – http://www.guardian.co.uk/money/2008/feb/29/insurance.creditcrunch

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  • Interesting chain of events, dohouses. Note that if the insurers fail, their best assets (safest insurance policies) will be bought up by someone like Warren Buffet at fire-sale prices. The remaining products will become worth less, not worthless. The rest of your chain of events is still correct, since it only takes a small fall in values to destroy banks’ capital reserve ratios.

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