In it he quickly tries to put in perspective the potential "economic apocalypse" that would happen if the Government were to let AIG fail.
Selected Excerpts Follow:
And that is just the effects of the failure of the US life insurance businesses!“Systemic risk” is a phrase often used to describe the domino effect of one business’s failure on the rest of the economy. We saw the dangers of systemic risk in action when Lehman Brothers failed in September. And we’ve heard a lot from Detroit automobile executives about the systemic risk they say the nation would face should General Motors teeter. But those failures look like summer thundershowers compared with the financial hurricane that a collapse of A.I.G. would represent...
One of the biggest worries, besides the considerable collateral damage to the banking system, is a risk that most people aren’t talking about, perhaps because it’s too scary. This one is probably easier to understand than any kind of financial chicanery: the dangers lurking below A.I.G.’s seemingly stable, highly regulated life insurance business. In the United States, A.I.G. has more than 375 million policies with a face value of $19 trillion.
Even though A.I.G.’s insurance business is regulated by states, there probably would not be enough money to pay out to consumers from what’s known as a guarantee fund. Other regulated insurance companies, which have been weakened by credit losses, would be required to pay money into the fund to cover the shortfall, weakening them further and in some cases bankrupting them.
What’s worse, if A.I.G. failed, many people would be unable to obtain the same insurance from a competitor for the same price. In fact, many people would probably be shut out. “Some life-policy holders may no longer be insurable at commensurate rates or as a result of adverse health situations since the purchase of the original policy,” the document said.
