AIG is a HUGE company with tendrils extending into many countries, including Canada. It is a cornerstone of the mortgage market because it insures high-ratio mortgages. In other words, if you didn’t put down 20-25% when you bought your house, you probably had to pay some kind of insurance premium to cover the lender in case you default. In Canada, it is primarily CMHC that does this with a little additional coverage from AIG. In the USA, AIG covers a substantial percentage of the market.

If AIG had failed, it could have taken down a substantial portion of the banking system with it. The reason AIG is having so much trouble is because of a very small number of its own employees and a SUBSTANTIAL number of corrupt mortgage brokers who deceived them. When the U.S. housing market began to flail around like a steerage passenger on Titanic, it was not the banks who took the first ballshots – it was the companies that insured the mortgages like AIG. Read the rest of this entry »