The two AIG's

Barry goes off on the AIG situation - and does a wonderful job of explaining how the AIG we have, is very different from the AIG we'd heard of.

When AIG first faltered, there were two companies jammed under one roof. One was a highly regulated, state supervised, life insurance company. In fact, the biggest such firm in the world.
The other firm was an unregulated structured finance firm, specializing in credit default swaps and other derivatives.

The first firm was Triple AAA rated. They had a long history of steady growth, profitability, excellent management. They made money (as the commercial goes) the old fashioned way: They earned it.

[snip]


The other part of the firm was none of the above. It was neither regulated nor transparent. It existed only in the shadow banking world, a nether region of speculation, and of big derivative bets. This part of the company engaged in the most speculative of trading with hedge funds, banks, rank speculators, gamblers from around the world. Huge derivative bets were placed, with billions of dollars riding on the outcome. ...

This part of AIG was nothing more than a giant structured finance hedge fund.