Disclaimer: I'm not a stockholder and have never worked there, so my knowledge of AIG is not intimate. But this is what I know from reading the newspaper and talking to people who used to work there.
You can think of AIG like two separate companies.
Their traditional and heavily-regulated insurance operations are relatively healthy. This a good and viable business that, in a traditional and risk-intelligent way, underwrites major segments of the non-financial U.S. economy.
From consumer-end home & auto insurance policies to being the biggest workers comp issuer in the country to actually *owning* many of the airplanes that the big carriers fly and insuring a huge proportion of the country's pension & 401k plans, this side of the company is very big, conservatively managed, and underpins major segments of the "real" economy. Same holds true for AIG in Asia.
The other side of AIG is the highly speculative shadowy pseudo-hedge fund behemoth that Hank Greenberg used as his growth engine for so many years. This is the side that wrote over half a trillion dollars of credit default swaps and other complex derivatives with the large American & European investment banks & hedge funds.
Because AIG carried a AAA-rating at the time, they did not have to provide any collateral on those contracts. And they were writing default swaps to insure against exactly what is happening to all of the banks and investors now.
To simplify the problem, this part of the company was speculatively insuring investors against losses at the top of the market and doing it with nearly 100% leverage. And they didn't hedge their bets. Even simpler, they are F-U-C-K-E-D.
But the fate of the "two sides" of AIG are too closely intertwined if the company is allowed to fail. The problem is not only the size of AIG but how interconnected they are for key non-financial industries both in the U.S. economy and overseas.
I agree though that the bailouts for AIG are sickening. Even more sickening than the dollar amount is the degree to which the whole process has been very opaque.
I think all we can hope for at this point is that the recent cash injections buys enough time for the company to cleanly sell off the "good" traditional insurance units, the proceeds of which are used to repay the gov't while the rest is slowly and deliberately unwound.
A lot of those speculative derivative-driven losses still remain to be taken by AIG and their financial sector counterparties, which will and *should* result in further carnage for AIG and large bank stock & bondholders.
I do think buying some time & space to sell off the good parts of the business in an orderly fashion is probably a good thing for the productive segments of the economy that feel a lot of pain if they got taken down by the bad parts of AIG. Really the gov't should have forced them into an orderly divestiture and liquidation the first time around rather than prolonging the pain.
But we don't even know that's what the government is hoping will happen. And without better transparency, I'm afraid it might be wishful thinking at this point.
