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Tag: 2008 Financial Crisis

Washington and Lee Law Review - 2008 Financial Crisis


by William K. Sjostrom, Jr

In the early spring of 2009, I wrote an article on the federal government’s bailout of American International Group, Inc. (AIG) entitled The AIG Bailout. The bailout was necessitated by AIG’s disastrous multi-billion dollar bets on the United States housing market that brought it to the brink of bankruptcy. At the time, AIG was the largest insurance company in the United States. Because of its size and interconnectedness, and the fact that financial markets were already under serious distress, it was feared that AIG’s failure would lead to the disintegration of the entire financial system. Hence the federal government stepped in with an $85 billion loan, with total aid ultimately reaching $182.5 billion. Many events related to the bailout transpired after my article was published. Hence, this Article serves as an afterword to The AIG Bailout, detailing some of these post-article events. In that regard, the Article proceeds as follows: Part II picks up where Part IV of The AIG Bailout left off. It describes the further restructuring of government assistance through the recapitalization of AIG, details the government’s exit as AIG’s controlling shareholder, and considers the U.S. Department of Treasury’s claim of a $22.7 billion “overall positive return” on the AIG Bailout. Part III delves into the Maiden Lane III transactions, perhaps the most controversial part of the bailout, pursuant to which Société Générale, Goldman Sachs, Merrill Lynch and other AIGFP counterparties were bought out at essentially 100 cents on the dollar. Part IV examines the provisions of the Dodd–Frank Wall Street Reform and Consumer Protection Act (Dodd–Frank), the principal federal regulatory response to the financial crisis, most relevant to what happened at AIG. Specifically, it considers how these regulations would have applied to AIG had they been in place prior to its collapse. Part V concludes the Article. Part IV examines the