The Washington Post has a three-part investigative series on the collapse of AIG. In Part 1, the paper argues that the seeds of the fall be traced to a pair of nerdy go-getters, Howard Sosin and Randy Rackson, who hatched a scheme in 1986 to boost profits and minimize risk that ended up becoming AIG Financial Products. The venture earned billions, but "unleashed techniques that others on Wall Street rushed to emulate, creating vast, interlocking deals that bound together financial institutions in ways that no one fully understood and contributed to the demise of its parent company as a private enterprise." Chief among these techniques was the expanded use of derivatives backed by AIG's top bond rating in order to hedge the unit's bets on investments. The scheme made it almost impossible to lose money—until the whole system came crashing down in September.
Read it at The Washington Post
