Why AIG Won’t Fail…Update With Patterson Video

It would be catastrophic to State’s already tapped out budgets.

What do I mean? In Massachusetts, if an insurer goes under, its claims go to an “insolvency fund“. Most State have similar statutes. An AIG (AIG) collapse, being the largest insurer, would destroy the value of these funds as they are not sufficiently capitalized to handle a collapse the size of AIG, nor are they staffed to handle to onslaught of claims that would then flow their way.

The Massachusetts Insurers Insolvency Fund (the “Fund”), created by Mass. Gen. L. c. 175D, is a nonprofit unincorporated association of all insurers writing liability and property insurance in the Commonwealth. It is available to settle up to $300,000 per claim that arises from an insurance policy issued by an insolvent insurer. The Fund’s obligations and expenses are met by mandatory contributions by all liability and property insurers who write insurance in the Commonwealth.

The States would then be on the handle for these claims while, they waited perhaps a decade to e reimbursed from the bankruptcy proceeding. State do have the money now to repair roads and fund schools, do we really think they can handle the trillion dollars of liabilities AIG has? Me either. 25 states currently operate in a deficit, there isn’t any more money from them to handle these claims.

Watch NY Govenor David Patterson on CNBC this morning:

Patterson almost gets into it but avoids the “forget about AIG, think about us” statement.

I bought some AIG at $2.35 today, a small amount since it is still very risky. I just do not see the States, and by association, Paulson, allowing it to go under. Whatever it costs them to keep it solvent it far less than a failure will cost them.

We’ll see….fortunately with this trade, it will not take very long to know how it worked out..

Disclosure (“none” means no position):
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