AIG, help them

We need to continue funding AIG. We cannot allow it to fail. Hear me out.

The problem with letting a company like AIG fail is what will fail around it. See AIG insured just about everything that has been fucked up with the economy. Failed mortgages, credit default swaps, the 38 billion it backs money funds with, and the 19 trillion in life insurance policies that people might redeem early or withdraw money from. It's a tangled web. Much like Lehman Brothers they have thier hand in just about everything. Even The Oracle (Buffet) thinks we should not let AIG fail.

Credit default swap, in case you don't know what they are, is a derivitive contract. An agreement exists between two counterparties, a buyer and a seller. Most often these contracts are considered insurance since a premium is involved. And I used considered lightly because they are not an insurance product. So here is the breakdown.

Buyer makes a series of payments to seller in exchange, receives a payoff if a company credit instrument (bond, loan) goes into default. If there is no default and the credit rating holds the buyer loses the money he has paid. If there is a default the buyer gets paid whatever the basis points were on the contract.

Example: Buy 2 year contract on Citigroup for up to 1MM in protection. 50 basis points.
Buyer pays $50,000 a year until expiration.

Default happens, buyer gets 1MM.
Default doesn't happen, buyer loses $100,000

Reasons for doing something like this would be #1, Speculation. #2, Hedging. Now there are other strategies that goes along with this instruments but that's for another day as they are quite involves and sometimes difficult to understand. Especially for you beginner's. Credit default swaps are however the #1 traded derivitive.