AIG is nationalised at the last minute

In the end, the US authorities decided that AIG was just too big and too important to fail. So they nationalised it. The world’s largest insurance business is now owned by the US Government…

AIG has been saved with a $85bn loan from the US Treasury in return for an 80% stake.

Why did the US Government step in to save AIG when it had let Lehman Brothers fail just days before? Essentially the answer lies in the term “systemic risk”. If AIG had failed, then the entire global banking system was at risk of failing. AIG has provided the insurance cover on risky loans made by banks around the world. Without this insurance, there would have been a rush to raise capital by the banks that would inevitably have resulted in failure for many of them. The effect would have been catastrophic - for all of us in time.

First it was Northern Rock. Now it is AIG. Nationalisation is back in favour - expect it to return to the Business Studies specifications once the examiners next time around