AIG: A Shanghai Startup, $441 Billion in Swaps and a $182 Billion Rescue

Got something to say to this podcast? Send a voicemail, and you might hear yourself on the next episode!

American International Group began on December 19, 1919, when American Cornelius Vander Starr opened American Asiatic Underwriters in Shanghai. By the late 1920s it had branches across the Philippines, Malaya and the Dutch East Indies, and as war loomed in Asia Starr moved into Latin America, opening offices in places like Havana. He moved headquarters to New York in 1939, insured American military personnel in Japan and Germany after the war, and by the end of the 1950s operated in more than 75 countries. Hank Greenberg, hired in 1960, switched the US business from salaried agents to independent brokers, and AIG took on political risk, pollution liability, shipping and offshore energy coverage.

In the early 2000s AIG faced investigations by the SEC, the Justice Department and the New York Attorney General, Greenberg was forced out in 2005, and the company paid a $1.6 billion fine. Meanwhile AIG Financial Products in London, led by Joseph Cassano, sold credit default swaps on $441 billion of securities, over $57 billion tied to subprime mortgages, without hedging. After a credit downgrade in September 2008 triggered collateral calls, the New York Fed under Timothy Geithner extended $85 billion on September 16, growing past $180 billion, for a 79.9 percent stake. AIG repaid $205 billion against $182.3 billion provided, a $22.7 billion gain for taxpayers.

• AIG bought aircraft lessor ILFC and SunAmerica, and in 1992 became the first foreign insurer licensed in China in over 40 years.
• Revelations in March 2009 of more than $165 million in executive bonuses set off public outrage.
• To repay the government, AIG sold ALICO to MetLife for $15.5 billion and 21st Century Insurance to Farmers for $1.9 billion.
• In Starr International Co. v. United States, Judge Thomas Wheeler found the equity demand an illegal exaction but awarded zero damages.
• AIG was removed from the systemically important list in 2017, and its 2022 Corebridge Financial spinoff was the year's largest US IPO at $1.68 billion.