Many of us know about AIG bailout by the US federal govt after 2008 market crash. AIG (American International Group) faced a near-collapse during the 2008 financial crisis due to several factors. Here are the key reasons: 1. Credit Default Swaps (CDS): AIG sold a large number of CDS, which are essentially insurance contracts on bonds. When the housing market crashed, the mortgage-backed securities underlying these CDS defaulted, leading to massive losses. 2. Securities Lending: AIG engaged in securities lending, which also resulted in significant losses when the value of the securities dropped. 3. Poor Risk Management: AIG’s risk management practices were inadequate, and the company took on excessive risk without proper oversight. 4. Deregulation: The deregulation of the financial industry allowed AIG to engage in risky financial practices without sufficient regulatory oversight. 5. Over-reliance on Mortgage-Backed Securities: AIG heavily invested in mortgage-backed securities, wh...
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