Would you like to read AIG's blackmail letter to govt?

[kristopher]

2
What is Systemic Risk?
 Systemic risk is the risk imposed by inter-linkages and interdependencies in a system
or market, which could potentially bankrupt or bring down the entire system or market if
one player is eliminated, or a cluster of failures occurs at once.< [br /> Systemic financial risk occurs when contingency plans that are developed individually
to address selected risks are collectively incompatible. It is the quintessential “knee
bone is connected to the thigh bone...” where every element that once appeared
independent is connected with every other element.
 AIG’s business model – a sprawl of $1 trillion of insurance and financial services
businesses, whose AAA credit was used to backstop a $2 trillion dollar financial
products trading business – has many inherent risks that are correlated with one
another. As the global economy has experienced multi-sector failures, AIG’s vast
business has been weakened by these multi-sector failures.
 AIG’s original problem – an over-reliance on U.S. residential mortgage-backed
securities (RMBS) in its investment portfolios – has now been deepened by weakness
in the commercial mortgage-backed securities market, the global real estate market,
the global equities market, slowing business and consumer spending activity and the
concomitant demand for higher liquidity by regulators and customers around the world.
 Systemic risk afflicts all life insurance and investment firms around the world. Thus,
what happens to AIG has the potential to trigger a cascading set of further failures
which cannot be stopped except by extraordinary means.
2
Risk Assessment Summary
• In the fall of 2008, the Federal Reserve and Department of the Treasury determined that
the systemic risk of a failure of AIG was so great that they should provide a support
program by injecting liquidity and equity capital into AIG.
• To repay the debt and reduce the degree of financial risk to the firm, AIG has instituted a
wind-down of its Financial Products business and a massive divestiture process to sell
businesses, despite the increasingly difficult M&A and credit environment.
•The previously provided solution addressed short-term liquidity needs and AIG’s over-
concentration in the RMBS market. But AIG still faces massive investment losses and
credit downgrades. Without additional federal tools being deployed in the AIG situation,
AIG will not be able to repay its obligations. Despite adequate current security against the
U.S. government’s investment, that investment may not be recovered.
• AIG operates in more than 140 countries around the world, whose customers,
regulators, and governments have thus far been refrained from liquidating or seizing
assets based largely on the support given to AIG by the U.S. government.
• The failure of AIG would cause turmoil in the U.S. economy and global markets, and
have multiple and potentially catastrophic unforeseen consequences.
•The inability of AIG to immediately secure additional assistance from the Federal
Reserve and the Department of the Treasury threatens not only AIG’s sales process, but
also consumer and business confidence around the world.

20 more pages at: http://www.scribd.com/doc/13112282/AIG-Risk-Bankruptcy-Report?autodown=pdf