They knew if they became 'to big to fail' the country would have to do something about them.
They were 'eyeing' a bailout the entire time.
So, while these firms were riding high on nothing but ego, AIG was insuring them to prevent collapse IF the entire 'speculative' mess fell apart.
Now, I am no Wall Street genius. But, the 'idea' of supply and demand seems relatively simple. When there is 'a lot' of a product the price comes down and when there isn't enough of a product the price goes up.
Relatively simple concept. So, now that ANYONE could 'speculate' by using their home equity as a CREDIT LINE, the 'game began.' No constraints. No shoulds or shouldn't. Simply 'gaming the system' and KNOWING the entire time the worse their 'SPECULATION RATIO' (In some circles called "Margin.") became the more chance existed they would fail.
And guess what? It became time for 'Margin Call.' When the investment banks, except Morgan, couldn't make 'margin call' they turned to AIG to 'pay off on their insurance.' What a convenience that was. To simply ride rough shod over the entire system of finance on a global scale and figure if it all feel apart they had their own bailout ready.
Wow. No holds barred Wall Street. How sweet it is.
Well, AIG didn't have enough money. After all they were speculating too, but, their 'Leverage Ratio' was worse than those they insured.
But we all remember that, right?
The USA Treasury came riding to the rescue. The Fed came riding to the rescue. $700 billion bailout so they could MANAGE their toxic assets (AND NOT ABANDON THEM) and a $1 Tillion 'petty cash' fund so there was no barrier to any recovery.
Hm.
So. Like. What happened?
