Active Stocks
Thu Mar 28 2024 15:59:33
  1. Tata Steel share price
  2. 155.90 2.00%
  1. ICICI Bank share price
  2. 1,095.75 1.08%
  1. HDFC Bank share price
  2. 1,448.20 0.52%
  1. ITC share price
  2. 428.55 0.13%
  1. Power Grid Corporation Of India share price
  2. 277.05 2.21%
Business News/ Opinion / Online-views/  Insurance giant AIG’s role in market crisis probed
BackBack

Insurance giant AIG’s role in market crisis probed

Insurance giant AIG’s role in market crisis probed

Premium

Washington: The government’s rescue of insurance giant American International Group Inc. last month is getting a critical eye from lawmakers examining the chain of events that forced a $700 billion bailout of the financial industry.

Three former AIG chief executive officers, including its largest individual shareholder, Maurice “Hank" Greenberg, are scheduled to testify Tuesday before the House Oversight and Government Reform Committee. The hearing is the second in two days into financial excesses and regulatory mistakes that have spooked stock and credit markets and heightened fears about a global recession.

The Federal Reserve rescued AIG with the $85 billion loan 16 September, one day after investment bank Lehman Brothers declared bankruptcy when the government would not come to its aid. Lehman Brothers’ chief executive officer testified on Monday before the congressional oversight panel but did not shed much light on how the mid-September events cascaded into a collapse of credit markets requiring a broad bailout.

The government now holds warrants that can be converted into an 80% stake of AIG and there is hope taxpayers won’t lose money on the deal since the company has profitable subsidiaries that could be sold to pay off the Fed’s loan.

The Fed’s move rescued the company from bankruptcy after the insurance conglomerate’s exposure to enormous losses related to subprime mortgage securities forced it to the brink.

Problems at AIG did not come from its traditional insurance subsidiaries, but instead from its financial services operations, primarily its insurance of mortgage-backed securities and other risky debt against default. Government officials feared that a panic might occur if AIG could not make good on its promise to cover losses on the securities; investors feared the consequences would pose a threat to the US financial system, which led to the government bailout.

Despite the government’s move on AIG and Congress agreeing to spend up to $700 billion to buy up soured mortgage-based securities and other bad debt, credit remains tight and the stock market continued to plunge downward Monday despite a brief rally at the end of the day.

For four decades Greenberg oversaw AIG’s growth into a sprawling conglomerate with businesses in 130 countries. Also on deck is Robert B. Willumstad, the former CEO just ousted by Treasury Secretary Henry Paulson.

On Monday, Paulson named Neel Kashkari, 35, to head the office created under the emergency bailout enacted Friday. Kashkari, an assistant Treasury secretary for international affairs, helped draft the bailout legislation and is one of Paulson’s closest advisers on the crisis.

Unlock a world of Benefits! From insightful newsletters to real-time stock tracking, breaking news and a personalized newsfeed – it's all here, just a click away! Login Now!

Catch all the Business News, Market News, Breaking News Events and Latest News Updates on Live Mint. Download The Mint News App to get Daily Market Updates.
More Less
Published: 07 Oct 2008, 12:09 PM IST
Next Story footLogo
Recommended For You
Switch to the Mint app for fast and personalized news - Get App