Maybe the reporter got it wrong, but if not the situation is explosive. AIG subsidiaries are in a huge daisy chain, reinsuring one another’s risks and holding large chunks of the assets that are supposed to back up their insurance policies in the form of unlisted and untradeable stock in one another. The Feds don’t want to shut down AIG because the government still hopes to get its money back, none of the states really knows what it’s doing (and AIG can shift assets around as each state examination happens), and the policyholders (as opposed to the counterparties in derivatives transactions) may be at serious risk.
Time for state-level regulation of insurance companies to go the way of the buggy whip. But in this case, the federal government seems to be part of the problem.
I can’t understand why there hasn’t been more fuss about this since the story broke yesterday.
