Blog
AIG facing oblivion - all bets are off if this happens
16th September 2008
The event that could trigger an even bigger fallout in global financial markets than Lehman Bros is said to be just “one day away”...
That is the gloomly prognosis for insurance giant AIG being reported by the financial wires this afternoon. See here in the FT and here in the Times.
If AIG does go down, and it looks increasingly likely, then we are truly in uncharted territory. The problem is not the insurance market generally - it is that AIG has insured many of the complex, rotten financial instruments developed by the likes of Lehman Brothers. The effects coud be dreadful across the entire global financial system.
These are fascinating, but perhaps also frightening times for any student or teacher of business or economics. In an interview this morning, respected venture capitalist Jon Moulton admitted that he too is frightened - it takes something extraordinary for him to say that.
Lets see what happens over the next 24-48 hours. Should AIG fail, then all bets are off. Might HBOS become the UK’s biggest-ever banking failure over the weekend? It sounds far-fetched, but confidence in the banking sector can evaporate so quickly (as we saw with Northern Rock). Will the Central Banks let such names fail?
Hold on tight…
Geoff Riley
Geoff Riley FRSA has been teaching Economics for over thirty years. He has over twenty years experience as Head of Economics at leading schools. He writes extensively and is a contributor and presenter on CPD conferences in the UK and overseas.