DealBook: Lehman Expected to File for Bankruptcy
As for AIG:
A.I.G., which is based in New York, has also been under pressure from the derivatives contracts that its London-based financial products unit sold in connection with complex debt securities. Those contracts, called credit default swaps, acted as a type of insurance on the debt securities, making them more attractive to buyers. The swaps also gave speculators an opportunity to bet on the debt securities’ overall creditworthiness, which has declined in response to the turmoil in the housing markets.
When A.I.G.’s financial products unit sold the credit default swaps, it effectively promised to compensate buyers of the debt securities if the mortgages underlying them got into trouble. At the time, the securities were rated AAA, so it seemed at first that A.I.G. was not taking on inordinate risk.
But that picture changed as the housing crisis ? took hold and homeowners began to default. A.I.G. wrote down the value of its swap portfolio by $25 billion, telling investors that the markdowns did not represent a cash loss of that magnitude. It estimated possible cash payouts on the swaps of between $5 billion and $8 billion.
But because the debt securities covered by the swaps are so complex and opaque, it has been hard for investors to verify A.I.G.’s numbers on their own, and investors have grown impatient as A.I.G. reported big losses they did not expect in the last two quarters. Rush Is On to Prevent A.I.G. From Failing
Housing crisis ? Oh, must be reference to that scheme that Wall Street came up with, you know, manufacture mortgage defaults so i-bankstards could profit from their 30-100x levered credit default swap "speculation". Nothing speculative here, knowing subsidiary mortgage servicers were doing the dirty work for them. This deck has been stacked with marked cards far too long and continues to damage millions of Americans.