AIG Financial Products

AIG Financial Products

AIG Financial Products Corporation. (AIGFP) is a subsidiary of the American International Group, headquartered in Fairfield, CT, with major operations in London, it is currently in the process of winding down all of its operations. The collapse of AIG Financial Products is considered to have played a pivotal role in the global financial crisis of 2008–2009. In the Spring of 2008 AIGFP suffered enormous loses from credit default swaps that it issued and traded. When these credit default swaps were issued in years prior the management of AIGFP believed they would only have to pay out very few, if any of the swaps. However as the financial crisis worsened during early 2008 many companies began to default on their debt, forcing AIGFP to assume losses greater than what was ever anticipated.

The losses at AIGFP caused credit agencies to downgrade the credit rating of the entire AIG corporation in September 2008. The resulting liquidity crisis essentially bankrupted all of AIG. Many believed that AIG was too big to fail and that an AIG bankruptcy could cause an already fragile financial system to collapse, prompting the Federal Reserve Bank to extend an $85 billion line of credit to AIG. As a result the Federal Reserve was issued a stock warrant for 79.9% of the equity in AIG, effectively nationalizing the world's largest insurer. Shortly after, then treasury secretary, Henry Paulson announced the treasury's desire to break up and liquidate most of AIG. The company has since been selling off many of its subsidiaries in order to raise the cash necessary to pay back the Federal Reserve. AIG is currently in the process of closing AIGFP.