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Politics : Formerly About Advanced Micro Devices -- Ignore unavailable to you. Want to Upgrade?

To: tejek who wrote (465055)	3/19/2009 6:23:21 PM
From: brushwud	Read Replies (2) \| Respond to of 1575235

when they developed these financial instruments, they apparently didn't take a logical, straightforward approach. Hence, the difficulty AIG is having trying to unwind them If you sell fire or life insurance to a diverse customer base, that's going to be a pretty solid business year in and year out because the losses are fairly predictable. But it looks like what AIG got into was essentially insuring the value of assets, like the homes which are the collateral of mortgage bundles. That's a lot like writing puts on the S&P 500 -- you can successfully pocket the premiums for several years and then one year you might get wiped out. If I did this, my broker would sell me out before my account went to zero (or beyond). In the case of AIG, evidently there was no regulation, so they could take as much of a risk as they wanted and when their position started to go south, no one could or would stop it. "Unwinding" their position amounts to hoping the real estate market will turn around so the eventual loss is less than it would be if they closed it out today.