AIG And The Trouble With 'Credit Default Swaps'

Morning Edition, September 18, 2008 · With the government's $85 billion loan to American International Group — and its controlling stake in the company — the United States is now in the insurance business.

AIG is the largest commercial and industrial insurer in the nation, NPR business correspondent Adam Davidson told Steve Inskeep. The company also offers lines for individual customers in the U.S. and around the globe. The more traditional aspects of AIG's business continue to perform fairly well.

But a few years ago, AIG got involved in a new aspect of the financial system: It joined in the selling of so-called credit default swaps. A credit default swap, or CDS, is essentially insurance on debt.

Gambling On The Future

Imagine a bank that has bought bonds from, say, the Port Authority of New York and New Jersey. That means -------------------------->More