A Summary of the case “Coping with Financial and ethical Risks at American International Group (AIG)”

Background American International Group, Inc. is a company whose operation began back in 1919. It was established back then by Cornelius Vander Starr as an insurance agency in Shanghai, China. AIG left china in 1949 after Starr had established himself as the westerner the sell insurance to the Chinese people. AIG headquarters then shifted from china to New York City, which is still the headquarters up to date. It is from here that AIG began its expansion tapping into other markets such as the Latin America, Asia, Middle East and Europe through use of its subsidiaries. AIG – Causes of its demise

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This made AIG to pay in collateral for the deals over $1 billion. This was the mark of many dark days for the unit. It was until later in the year that Eugene Park an executive at AIGFP was named to closely look at the portfolio containing the firms credit default swaps. The evidence was alarming in that the unit had insured many CDO's that had large proportions of it as subprime mortgages. This meant that in any situation where the housing market had to collapse the risk of default was too high. This coming up after the downgrading of the units credit ratings indicated an increased chance that AIGFP had to come up with collateral to pay out all the bets it had made in the past. In the year 2007 with the collapse of the housing market and plummeting in value of subprime assets AIG was supposed to pay a sum of $1.5 billion to Goldman Sachs based on the credit default swaps insured by AIG to cover the mortgage backed securities. During the same year AIG had to pay $2 billion to meet the demands of other firms that made collateral demands. It was during this year that the stock prices of AIG fell 25 percent and a reported loss of $1.1 billion in portfolio swaps in AIGFP. The problems facing AIG continued further with the company reporting a loss of $11.5 billion and in addition $5.3 billion posted as collateral in February of 2008. AIG would get further shock as the credit rating agencies planned to