reply to post by Crakeur
You pretty much explained it all correctly..
AIG has a insurer called AIG United Guaranty, which is a PMI insurance coverage for home owners with less then 20% equity..
Anyone who owns a home and is paying PMI, at 20% you legally do not need and are not bound to have PMI insurance..
As far as I know, AIG was a pretty big insurer of PMI, but QBE Insurance Group Ltd. is the second largest in America, and PMI Group is the largest
(QBE is slowly taking them over though)..
They really are not doing as bad as you would think, I am not sure if this means the majority of failures are over 20% equity and don't have PMI or
they where just good at hedging their losses like a good bank should?
From reading on AIG's economic situation, it would appear insurance had nothing what so ever to do with their losses..
The way Insurance companies make money off Health, Life and Annuities (their biggest markets) is they take the premiums and invest them in markets.
The company I used to work for put most of their money into realestate development.. sounds odd, an Insurance company that develops real estate..
however they made billions in profits while others where slowly declining..
Other companies like AIG had horrible, greedy CEO's that decided the best path to riches in the shortest amount of time was to create investment
products that invested in highly risky debt trades and securities.. so if you invest in another bank who buys a massive amount of loans that where
newly issued and very little equity and they begin defaulting, your investments in the debts is wiped away.. It worked for a while, a bank would
issue a 30 year $100,000 loan at 5.5% interest and 0 money down. They would then sell it to another bank for $120,000, who in turn sold it to an
investment bank for $160,000. Some mortgages are sold over and over and over.. I know someone who had theirs sold 7 times, and i'm certain she is
not the record holder (banks inform you when they sell your loan, so you may know this). I know people who never knew their mortgage was sold, and
they sent the check to their original bank, who would forward to the new one.. it's absurd.
But it's how banks make quick and easy profits.
If you invest money in an investment bank to buy a batch of sub-prime loans, and they all begin defaulting, you could loose billions very fast.
This is what AIG did.
Bad investing it would appear.. among other things, no doubt. I have heard their funds are very poor right now and have steep loses, though most of
the big funds are low right now.. I saw today on the news that a Money Market fund failed, which I don't think I have ever even heard of. It's a
pretty low risk investment lol..
Anyways, hope this helped you out a little OP.