Thoughts from someone that works in the industry:
American International Group, Inc. They have (or did have) over $1 Trillion dollars in assets and have been the largest insurance company in the world for a number of years. At their peek they were the 3rd largest company in the world period. Larger than any Oil company or manufacturer there is. 2008 has been a crappy year for them and they've fallen considerably, but they are still very very large.
How are they related? Well AIG insured the debt. (yes debt is insured. Everything is insured) of a number of mortgage brokers and banks. When all the debt went bad, their claims skyrocket and their reserves weren't enough to handle that.
AIG as a whole is an extremely diverse company (group of companies really) and this is only a portion of their business, but one that was allowed to get so large that its problems are affecting the company as a whole. And considering the timing of Hurricane Ike, which could cost them more than a billion in commercial property losses from what I hear, well, it's a shitty year for them.
The responsibility doesn't fall solely on the president or CEO. It isn't like Enron/Worldcom were a few corrupt guys brought down the company. Their problems are the industries problems. There are a lot of people/companies at fault. And you don't have to worry about the CEO's. The majority of their assets were in stock, which is now like $3 a share. They're broke as can be now.
Maybe health insurance gives the industry as a whole a bad rap, but without insurance the economy would not be able to survive. It makes doing business and/or owning personal property safe and reliable.
For a business owner (or stock holders) the amount of liability incurred by doing business is huge, and the assumption of that liability by another entity is necessary. Without insurance, a single property loss, injury of an employee, or error in a contract could put you out of business. The economy would not exist without insurance.
I know insurance companies are demonized a lot, and mostly this is due to personal lines like Health and Auto screwing over the consumer at times, but they are only a small part of the industry and as a whole insurance companies aren't evil. >.
They won't change the name. The government isn't looking for a long term stake in the market. They have no interest in getting in the insurance industry, especially since it isn't a federally regulated industry. The Fed bought 79% of AIG with a loan. They don't "own" the company per se, but they do get to call all the shots til they are paid back.
And no they can't pay it back in the since that most are thinking. That would equal about $5b a month. AIG is only interested in surviving until they can find a buyer. More than likely they will break the company up and sell the portions that are unaffected by the mortgage collapse, which they could get $100b's for.
They bought them to prevent any future problems that would affect the millions of policy holders, and thousands of agents/brokers and other carriers that are depended on them due to their stake in the industry.
Example, if they went belly up the industry would have millions of insureds with no way to renew their policies and the rest of the industry just doesn't have the capital and reserves to take on that much risk, not without raising rates on every line of business by considerable amounts. Right now the market can't take that. It's slow and stagnate and rates are already rock bottom and insured's don’t want to pay that. It would cause a lot of problems for us if AIG went under and so would every other carrier.
Like I said, the economy is largely dependent on the availability of insurance. Not bailing them out could have huge repercussions to almost every industry.
For example, I imagine your company could spend more than $300k a year on insurance since you're in manufacturing, have warehouses, offices and distribution centers and a lot of staff. They need Casualty/Umbrella/Property/E&O/PL/Workers Comp etc. insurance to cover all of that. If their rates doubled or tripled, how many people would they have to lay off to cover that? Now imagine every company there is having to do the same.
It could theoretically cause a domino affect that results in the loss of millions of jobs and the long term stagnation of growth in the private industry making it difficult to rebound from that for at least a few years.
Other things to note
I don't think any CEO is kidding themselves into thinking that the government will bail them out if they are approaching bankruptcy. The size and scope of AIG is so huge that it makes companies like Google and Apple look like your local mom-and-pop shop. The Fed would never bail out any company like that because the affects are localized in a single industry that is more or less capable of sustaining itself if one or two key companies went under. That's not the case for AIG however.
As for the Fed not bailing out Lehman Bros 2 days prior to the AIG loan? The banking industry will survive and the evidence in that is BoA's purchase of Merrill Lynch, Barclays almost immediate purchase of Lehman's assets, and Lloyd's purchase of HBOS today. There are other fish in the sea capable of assuming the debt of Lehman or other similar banks.
How will this affect policy holders? It won't. Insured's are protected by the State governing bodies. Your State's Insurance Commissioner makes sure of that. And as long as you have a valid policy, even if AIG went out of business, you would be protected. You wouldn't have to worry til you needed to renew.
