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3 pages/≈825 words
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MLA
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Business & Marketing
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English (U.S.)
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Business Memo. Summary of Events That led to Collapse of Lehman Brothers Bank & AIG Bailout

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Its after-hours on September 16, 2018. The government has just nationalized AIG. In the span of 24 hours the government went from $0 for Lehman to $85 billion for AIG. Mr. Geithner asked you to write a memo that summarizes the events leading up to Sept, 16, 2018. The memo should cover, at least, the following topics:
1. How did AIG get into a position from being the #1 insurer in the world to needing a government bailout to survive? What mistakes did they make? What assumptions did they make that turned out to be wrong?
2. What was AIG’s exposure to Lehman? How did Lehman’s bankruptcy affect AIG?
3. Why did Lehman get $0 and AIG $85 billion?
4. What role did Lehman’s collapse play into the Fed’s decision to pump $85 billion into
AIG?
5. In general terms, how did the Fed structure the deal?
6. What effect did the government’s takeover of AIG had on the markets?
7. How was the FED able to lend $85 billion to AIG - an insurance company not
regulated by the Fed?
You may only use “Too Big to Fail” as a reference. You are encourage to refer to specific events described in the book as well as the characters involved.
An “A” memo contains no or very few grammatical errors, as well as few or no logical flaws in
argument. The essay shows evidence of quality research, paired with a clearly stated thesis. The evidence presented within the argument must link to the thesis and adequately support all points presented. The thesis statement follows the prompt and the essay itself remains on topic at all times. An “A” memo has good organization and logic. An “A” memo is PROOFREAD and contains clear and flowing transitions from one idea to the next.

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Business memo
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Re: Summary of Events That led to Collapse of Lehman Brothers Bank & AIG Bailout
The Lehman Brothers Bank went bust and AIG had to be bailed out by the government for $85 billion. These events and the larger financial crisis they represent was caused by the trade of unregulated financial products known as CDOs produced by many banks involved in subprime mortgage lending and were insured by AIG and the crisis was triggered when the housing bubble popped.
AIG had done a series of poor investments that set them up for a failure. They had insured a new financial product offered by many banks known as credit default swaps (CDOs). CDOs are created by bundling many debts together into one bundle and selling it to investors. AIG had invested in CDOs against default through a financial product known as a credit default swaps. These CDOs were bundles of high risk and low risk debts most of whom large institutions holding mortgage-backed securities. The mistake that AIG made was buy these products without investigating what was contained in them though they had been given good AAA rating by standards and poor and other rating agencies. They should have investigated to be fully informed of the riskiness of these new financial products. The assumption they had that these products had a low risk of default was wrong and it is what cost them.
Lehman had over $400 billion in credit default swap contracts with AIG. Lehman had additional CDS with other large financial institutions all over the world. Lehman’s bankruptcy affected AIG because it meant that AIG would have to cover the CDOs owned by Lehman when it collapsed. It also meant that the CDOs insured by AIG were now riskier and more expensive. The other firms that had CDS with AIG were now running to AIG which ballooned AIG woes.
first, AIG failing would have led to a larger catastrophe on the economy and affect many other large financial institutions. If AIG failed, would trigger a domino effect globally as the insurance giant had provided protections worth more than half a trillion dollars, including $300 billion to banks in the US and in Europe. Secondly, Lehman’s exposure in the crisis was so large that it would have failed eventually. It had largely leveraged its position with the CDOs such that their chances of...
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