Great post by Credit Trader on how AIG misunderstood the risks it was taking. The risk wasn’t that the Securities they were insuring would default but rather that the collateral requirements on event triggers would bankrupt them.
What is completely mysterious is why is AIG even entertaining the claims. There are well documented fraudulant cases being uncovered in the mortgages that were sold.
In personal insurance cases if there is any violation of the insurance contract, the insurance company can simply refuse to make the payment. If any false information was provided even unwittingly the insurance would not pay-out. Doesn’t the same hold for these kinds of contracts?
Enquiring minds wish to know!
Update:Well they are suing Countrywide for false declarations.