AIG unit that had big role in 2008 crisis nears official end
NEW YORK (AP) — A unit of American International Group that played an outsized role in the 2008 global financial crises is nearing its official end.
AIG said Wednesday in a filing with the U.S. Securities and Exchange Commission that its Financial Products unit has filed for Chapter 11 bankruptcy protection.
Bad bets on mortgages by the Financial Products unit knocked parent company AIG off its feet, leading to a cascading series of bank failures that nearly caused a global economic collapse.
AIG was saved by a U.S. funded bailout package that eventually exceeded $182 billion, but the economic damage to the global economy was catastrophic. It was the beginning of the greatest economic catastrophe to hit the U.S. since the Great Depression.
The filing for AIG Financial Products Corp. was made Wednesday in U.S. Bankruptcy Court for the District of Delaware.
New York-based AIG is the largest creditor to its Financial Products subsidiary because it loaned the unit tens of billions of dollars during the economic crisis, a portion of the loans it received from the U.S. Federal Reserve.
But those loans were already recognized as losses in financial filings from 2008. The bankruptcy will have no material effect on AIG, according to a filing with the SEC Wednesday.
The unit had already ceased to function and has no employees, and largely existed due to ongoing legal issues.
In its heyday, the AIG unit was a major player in securities used by banks that were backed by subprime mortgages. The packaging of subprime mortgages was widespread by 2007 with numerous Wall Street players taking part in trading them at home and abroad.
Those subprime mortgages were bundled within higher quality tranches of mortgages and received higher-than-warranted ratings from major credit ratings agencies.
When those subprime mortgages began to fail, the stability of what was once thought to be safe investments for pension funds, schools systems and banks evaporated.
AIG paid back all of its government loan s by 2013.