AIG: MISCONCEPTIONS, PRECIPITATING FACTORS IN GOVERNMENT BAILOUT, AND IMPLICATIONS FOR THE FINANCIAL INDUSTRY

Open Access
Author:
Paulovich, Alexis
Area of Honors:
Economics
Degree:
Bachelor of Science
Document Type:
Thesis
Thesis Supervisors:
  • George David Haushalter, Thesis Supervisor
  • David Shapiro, Honors Advisor
Keywords:
  • American International Group
  • Government Bailout
  • Credit Default Swaps
  • Regulatory Arbitrage
  • Executive Compensation
Abstract:
The failure and subsequent bailout of American International Group was the first of its kind in United States history. The decision of the Federal Reserve to rescue the company has been criticized since day one, especially given the popular sentiment that AIG was brought down by credit default swaps. This paper provides an in-depth exploration of AIG, its history, its operations, and its failures. I propose three areas as the precipitating factors in the bailout: regulatory gaps, internal failures and executive compensation. These sections are further broken into divisions exploring pertinent subtopics for ease of reading. I conclude the paper by briefly discussing what can be learned from the AIG crisis and its implications across the financial industry.