) ( NYSE: AIG ) is a major American insurancecorporation based at the American International Building in New York City. TheBritishheadquarters are located on Fenchurch Streetin London, continentalEuropeoperations are based inLa Défense, Paris,and itsAsianHQ is in Hong Kong. According to the 2008 Forbes Global 2000list, AIG was the 18th-largest company in the world. It was on theDow Jones Industrial Averagefrom April 8, 2004 toSeptember 22, 2008.On September 16, 2008, AIG suffered a liquidity crisis following the downgrade of itscredit rating. The London unit of the world's largest insurer by assets sold credit protectionCredit default swap(CDS) oncollateralized debt obligations(CDOs) that declined in value.

[1]

The United StatesFederal Reserveloaned money to AIG at AIG'srequest, to prevent the company's collapse, in order for AIG to meet its obligations to postadditional collateral to trading partners. The Federal Reserve announced the creation of acredit facility of up toUS$85 billion in exchange for warrants for a 79.9% equity stake and the right to suspend dividends to previously issuedcommon and preferred stock .

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AIG announced the same day that its board accepted the terms of theFederal Reserve Bank's rescue package.

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This was the largest government bailout of a private company in U.S. history, though smaller than the bailout of Fannie Mae andFreddie Maca week earlier.

[7][8]

On October 9, 2008, the company borrowed an additional $37.8 billion from the FederalReserve Bank of New York.

[edit] History

The American International Building in lower ManhattanAIG's history dates back to 1919, whenCornelius Vander Starr established an insuranceagency inShanghai,China. Starr was the first Westerner in Shanghai to sell insurance to the Chinese. After his business became successful in Asia, he expanded to other markets,including Latin America, Europe, and the Middle East.

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In 1962, Starr gave

management of the company's less than successful U.S. holdings toMaurice R. "Hank"Greenberg, who shifted the company's U.S. focus from personal insurance to high-margincorporate coverage. Greenberg focused on selling insurance through independent brokersrather than agents to avoid selling insurance at prices which occasionally became too low(to cover the future payouts) given marketplace competition. A company with agentsmust pay their salaries even while selling little to no insurance. Instead, with brokers,AIG could price insurance properly even if it suffered decreased sales of certain productsfor great lengths of time with very little extra expense. In 1968, Starr named Greenberghis successor. The company went public in 1969.

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In the mid-2000s AIG became embroiled in a series of fraud investigations conducted bytheSecurities and Exchange Commission, U.S. Justice Department, and New York State Attorney General's Office. Greenberg was ousted amid an accounting scandal in February2005. The New York Attorney General's investigation led to a $1.6 billion fine for AIGand criminal charges for some of its executives. Greenberg was succeeded as CEO byMartin J. Sullivan, who had begun his career at AIG as a clerk in its London office in1970.

[3]

On June 15, 2008, under intense pressure due to financial losses and a falling stock price,Martin Sullivan resigned from the CEO position. He was replaced byRobert B.Willumstad, who had served as Chairman of the Board of Directors of the Company since2006. Willumstad was forced to step down and was replaced by Edward M. Liddy on September 17, 2008.

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[edit] Financial crisis

Further information:Subprime mortgage crisis , Financial crisis of 2007– 2008

, and Liquidity crisis of September 2008

[edit] September 2008 concerns about stability

AIG's share prices fell over 95% to just $1.25 on September 16, 2008, from a 52-week high of $70.13. The company reported over $13.2 billion in losses in the first six monthsof the year.

[9][10]

. AIG's Financial Product division headed by Joseph Cassanohad entered into credit default swaps to insure $441 billion worth of securities originally rated AAA.Of those securities, $57.8 billion were structured debt securities backed by subprimeloans.

[11]

AsLehman Brothers(thelargest bankruptcy in U.S. history) suffered a major decline in share price, investors began comparing the types of securities held by AIG and Lehman,and found that AIG had valued itsAlt-Aand sub-primemortgage-backed securities at 1.7 to 2 times the rates used by Lehman.

[9]

On September 14, 2008, AIG announced it wasconsidering selling its aircraft leasing division, International Lease Finance Corporation, in an effort to raise necessary capital for the company.

[9]

The Federal Reserve has hiredMorgan Stanleyto determine if there aresystemic risksto a failing AIG, and has asked private entities to supply short-term bridge loans to the company. In the meantime, New