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AIG Offers to Buy Back Securities

American International Group (AIG), agreed to buy back $15.7 billion worth of mortgage-backed securities the government had taken over when the insurer was near bankruptcy at the height of the financial crisis.  AIG, currently 92 percent-owned by the US government, said the government would realize profits of about $1.5 billion if it accepts the offer.

In a filing with the Securities and Exchange Commission, AIG explained that its total outstanding bailout assistance debt would be reduced by about $13 billion to about $26 billion if the offer is accepted.

The New York Federal Reserve created Maiden Lane II in 2008 to “ alleviate capital and liquidity pressures” on AIG.  The entity assumed more than $20.5 billion in residential mortgage-backed securities from several subsidiaries of the insurer, with the intention of allowing the company sufficient time to unload assets to repay the federal assistance.  AIG was one of the prime examples of the depth of the recession which crippled the nation's financial system in 2008 and 2009.

AIG's main function was to issue insurance known as credit default swaps that backed up the subprime mortgage industry.  When the industry collapsed, AIG did not have sufficient reserves to pay off the swaps.  Concerned that AIG's collapse could create a chain reaction that wold decimate the US and global economies, the government stepped in to save it from collapse.