Question

Is AIG too big to fail? 250 words

Answer 1

AIG was a global powerhouse in the insurance sales business for decades. But that business was on the brink of collapse in September 2008. The crisis epicenter was at a London office where a company division called AIG Financial Products (AIGFP) almost caused a pillar of American capitalism to collapse. The AIGFP company paid out investment risk policies. A standard policy would protect an investor against changes in interest rates or some other occurrence that would adversely affect the investment.

Nine years after receiving a bailout of $182 billion from taxpayers, federal regulators said AIG is no longer "too big to fail" and released the global insurance giant from stricter federal supervision. The move was expected as the Trump administration is stepping up its efforts to release businesses, especially Wall Street, from the tough regulations that President Trump has said strangle economic growth. During the midst of the financial crisis, AIG's hasty, divisive restructuring by the government and the national outrage that followed reports of bonuses given to AIG executives came afterwards to epitomize the grievances of taxpayers with the financial industry.

Following the financial crisis, Congress passed financial reforms known as Dodd-Frank which included stricter regulation for financial firms, outside traditional banks, which could pose a threat to the economy. Traditionally, those firms had received little government scrutiny. But after the near collapse of AIG, policymakers have called for more stringent rules for this segment of the finance industry. These firms had to set aside a bigger financial cushion and work with other safeguards in order to protect taxpayers if the firms had financial trouble.