Hi David

I might be starting a thread that is not completely relevant to the exam discussion. According to 2003 data as per chapter 12 - Credit Derivatives and Credit Linked notes, AIG stands at number 17 on Credit protection Sellers list. (This is definetly old data but couldnt find what ranking on AIG last year). If it was only the 17th ranked Seller, how come others didnt fail during the credit crisis? Chase had been the number 1 seller of Credit protection but it didnt. Infact, it was the bigger beneficiar in buying other banks. I understand both Lehman and Bear sterns did fail.

This could be a white paper discussion on its own but wanted to know your view on the issue. Not an urgent question to be answered. Please take your time if you are busy.

Regards
Hari

leverage?

I came across this article a while back..
http://alephblog.com/wp-content/uploads/2009/04/To What Degree Were AIG’s Operating Subsidiaries Sound.pdf

The NYT also took a stab at it 4-5 months back (one of the op-ed columns). I am unable to find the article though..all i get on google is Jake DeSantis’ public resignation on NYT..

I think this might be relevant to FRM. We have AIM from Jorion:
“Describe the advantages and disadvantages of VaR relative to other risk management tools such as stop-loss limits, notional limits, and exposure limits.”
i.e., we are cautioned that notional is not a good measure of true exposure

I haven’t seen the source doc, but from what I’ve read the source is a Fitch survey listing AIG at about 20th in notional exposure
e.g., great blog: economics of contempt:
http://economicsofcontempt.blogspot.com/2009/09/risk-held-at-aigfp-was-not-surprise.html

But if you look at the report by the ECB (p 29)
http://www.bionicturtle.com/learn/article/ecb_on_cds/
it’s a entirely different picture:
“Another example of an entity which was too interconnected and too big to fail was AIG. On 30 September 2008 the aggregate gross notional amount of credit derivatives sold by AIG was USD 493 billion – or USD 372 billion on a net basis.  This was an amount which could potentially affect the entire financial network. The net notional amount was almost double the aggregate net notional amount sold by all DTCC dealers combined at the end of October 2008”

so this is a dramatic difference of measuring on a notional vs net basis! On a net basis, they dwarfed everybody

David