During the financial crisis of 2008, AIG was one of the most critical firms facing failure, and as the US Government stepped in to provide assistance in order to prevent the larger financial system from unraveling. The outcome of the situation involves an overhaul of regulations a la Dodd-Frank, as well as a number of government-influenced management decisions after giving AIG a multi-billion dollar bailout. My focus for paper 2 is to analyze the precedent AIG set for establishing a business of such magnitude on practices that could tear down the financial sector of the United States in a matter of weeks, and threaten the greater economy as a whole.
I have found a book by Roderick Boyd, an investigative reporter intimate with the financial sector, reporting for Fortune, the New York Post’s business desk, and more, as well as working on both the buy- and sell-sides of Wall Street. His book, Fatal Risk: A Cautionary Tale of AIG’s Corporate Suicide, is an examination of AIG far before the financial crisis of 2008 and the company scandal of 2005, into the history of a company set to become one of the largest insurance providers in the world. His book looks into management decisions, factual reports, and the ultimate effect these decisions had – specifically looking at the trading of derivatives in the form of credit-default swaps (CDS) and collateralized debt obligations (CDO). Poor ethical choices, excessively risky operations, and the infamous fall from grace stand as landmarks of the AIG story, and Boyd is able to get into the gritty details to an impressive degree. He uses facts and reports to build a case for the negligent choices and analyzes how the compounding risk of AIG’s bets and operations were built on a house of cards. Boyd summarizes his introduction to the book in a way that captures the immense weight of this issue with the benefit of hindsight, while highlighting the egregious nature of AIG’s shortcomings. “The collapse of AIG…was an inside job. The men who had run AIG had forgotten a basic premise of risk: all risk was dangerous, but there were some risks that were more fatal than others.”