The Controversies Over the AIG's Collapse

Abstract

Prior to the 2008 financial crisis, American International Group Inc. (AIG) was the major insurance company in the world. However, due to several derivative transactions not related to its core business, AIG collapsed last September. In order to stabilize the economy and to prevent systemic risk, the U.S. Government gave AIG a financial aid of approximately $180 billion under the Troubled Asset Relief Program (TARP), which was only approved by the U.S. Congress after a long debate. The AIG’s bailout was again on the spotlight when its Board of Directors decided to pay $165 million in retention bonus to its employees last March. In this paper I will explain all those controversy issues. In Section 1, I will contextualize the problem, recapitulating the financial crisis of 2008. In Section 2, I will describe the transactions that lead to AIG’s collapse. In Section 3, I will explain what the U.S. Government is doing to stabilize the company and, consequently, the financial system as a whole. In Section 4, I will present the U.S. Government’s opinion regarding the bonuses payments and the company’s defensive arguments. In my conclusion, I will summarize all sections stating my personal opinion.