6 hours ago
Sunday, September 28, 2008
This article describes how AIG collapsed (and the huge potential liability that Goldman Sachs may have had if the government had not stepped in). The interesting point is that the AIG London office seems to have thought they were selling out of the money put options that would never be exercised, so they could post income. But of course this opens you up to unlimited losses if the options are exercised. It is a capital decimation strategy.