The line quoted below from Sen Richard Shelby describes my feeling on AIG. The exposure is enormous. The risk is large. It almost feels like they are paying out claims, avoiding failure and hoping the entire system (housing, banking, etc.) is propped up to stop the hemmorrhaging.
AIG was essentially the insurer of choice for financial instruments. They were packaged and sold, packaged again and resold and then once they landed somewhere, they were insured against default by AIG. With those defaults occuring, AIG has had to pay up. Without them paying up, more institutions would fall and increase the velocity of the claims. This would make the collapse of Bear Stearns and Lehman look orderly and efficient!
“You haven’t got all your hands around this bear, so to speak, and it’s still hemorrhaging money,” Shelby said. “How are you gong to back out of this?”
via Dow Jones NewsPlus – Geithner: No Power To Reduce Value Of AIG Counterparty Claims .