Quick recap on AIG: It was a large, respected and sound insurance giant composed of many parts bought up over the years. One of those parts was AIG FP, the financial products division, headquartered in London. FP dealt in exotic financial engineering instruments; chiefly credit default swaps. AIG suffered a liquidity crisis when it was downgraded during the financial crisis last year, as the global markets melted down following the massive losses in housing values.
Basically, AIG sold more insurance on financial products than it could back up. So the U.S. government, fearful that a collapse of AIG could bring down the entire financial system one day afterLehman Brotherscollapsed, stepped in with aid. Taxpayers now own 80 percent of AIG.
The GAO report said taxpayers remain so exposed in the wobbly AIG that the end-game "could result in the Federal Reserve and Treasury not being repaid in full."
Meanwhile Monday, Rep.Edolphus Towns(D-N.Y.), chairman of the House Oversight committee, said his panel will take a look at an AIG restructuring plan put forth by former company chief executiveHank Greenberg.
That news has sent shares of AIG shooting up 24 percent in trading today.
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