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AIG Bailout: Causes, Details, and Impact

The US government launched a massive bailout of American International Group (AIG) in 2008 during the financial crisis. [1] The Federal Reserve provided $182 billion in total aid to AIG to prevent its collapse, using funds from the Troubled Asset Relief Program. [2] AIG's risky investments in mortgage-backed securities and billions in credit default swaps left it vulnerable when the housing market declined. [3] Officials felt they had to rescue AIG to avoid damaging effects on the broader financial system and economy since it was deemed "too big to fail."

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107 views11 pages

AIG Bailout: Causes, Details, and Impact

The US government launched a massive bailout of American International Group (AIG) in 2008 during the financial crisis. [1] The Federal Reserve provided $182 billion in total aid to AIG to prevent its collapse, using funds from the Troubled Asset Relief Program. [2] AIG's risky investments in mortgage-backed securities and billions in credit default swaps left it vulnerable when the housing market declined. [3] Officials felt they had to rescue AIG to avoid damaging effects on the broader financial system and economy since it was deemed "too big to fail."

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Hey Jude
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Download as PPTX, PDF, TXT or read online on Scribd

Bailout of AIG

Group Members
Name ID

Badrur Rahman Siddiqui 19241139

Mahdi Mahmud 19241061

Sanja Kader 19241068

Ashikur Rahman 19241081

Md. Nazmul Hasan 18241077

Md. Muntasir Rahman 18241097

Samin Yeasar 18241007

Khairul Hasan Bhuiya Shezan 18241059


Overview of AIG

87% of the Fortune 83% of the Forbes 2000 $65.2 billion in 87th largest public company
Global 500 shareholder equity in
2017
Troubled Asset Relief Program

United States government purchased toxic


assets and equity from financial institutions

Increase the liquidity of money markets and


TARP secondary mortgage markets

2008 major financial institutions


experienced severe financial problems

Treasury Department used $105 billion in TARP


funds to launch the Capital Purchase Program
Causes of AIG downfall

Securities Lending

Risky Credit Default Swap Not “Money-good”


AIG securities lending business went
from less than $30 to $88.4 billion
AIG’s credit default swaps did not call “The fact that these underlying
for collateral to be paid in full assets did end up suffering
AIG did not have enough other liquid
assets to meet all the redemption substantial losses suggests that this
AIG had written credit default swaps on requests wasn’t just about liquidity”
over $500 billion in assets
Causes of Bailout

Credit default swaps Too Big to Fail

AIG's subprime mortgages pushed


company to the brink of bankruptcy Investment banks that held CDOs
insured by AIG were at risk of
stockholders got wind of the situation losing billions

AIG couldn't sell them before the AIG’s fall would send shockwaves
swaps came due money markets
2008: Details of the Bailout

Sep 16 2008: Federal Nov 10 2008: Fed reduced its Apr 2009, the Treasury
Reserve provided an $85 $85 billion loan to $60 committed another $29.84
billion to AIG billion billion

Oct 8 2008: Federal Reserve Nov 2008: Treasury Department


Bank of New York agreed to purchased $40 billion in AIG
lend $37.8 billion preferred

TOTAL 182
BILLION AID
The Bonus Scandal

President Obama chastised the firm for its March 2009: AIG paid $165 million
audacity of using borrowed taxpayer money government funds for employee
bonus incentives

AIG tried to award $265 million in


further bonuses
September 2008: sent its executives on a
half-million-dollar retreat
Consequences of Bailout

AIG reported the largest loss in corporate history, lost


nearly record $62 billion in the fourth quarter of 2008

The government and taxpayers made a $22.7 billion profit


from the AIG bailout.

AIG agreed to pay $960 million to investors who bought


AIG shares
What if AIG failed?

Letting such a large and interconnected  If AIG went down, it would send shockwaves
institution fail was not a gamble the government through the already shaky money market
was willing to take

The average household in America had to shell If AIG defaulted on its CDS contracts it would
out around $2000 bring down everyone who bought them as well
Thank you!

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