The Real Reason AIG Is Being Bailed Out

Another good article on why AIG must not fail. I have been warning you and my radio audience about the risk to fixed annuities and cash value life insurance. This article shines light on that risk.-Lou

The Case for Saving A.I.G

Inside the corridors of power in Washington, a 21-page document has been getting a lot of attention. It is marked confidential and titled “A.I.G.: Is the Risk Systemic?”

The report, prepared for regulators by the American International Group, examines the economic apocalypse that would follow if A.I.G. failed.

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.

.....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.
If policyholders lost faith in A.I.G. and rushed to cash in their policies all at once, the entire insurance industry could falter.

“A ‘run on the bank’ in the life and retirement business would have sweeping impacts across the economy in the U.S.,” according to the A.I.G. document. “In countries around the world with higher savings rates than in the U.S., the failure of insurance companies would be a catastrophe.”

Read Article Here:
http://www.nytimes.com/2009/03/03/business/economy/03sorkin.html?ref=business