AIG warned feds of dire situation

March 9, 2009 at 6:29 PM
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WASHINGTON, March 9 (UPI) -- U.S. insurance giant American International Group warned the government in February a company collapse would trigger a financial meltdown, a report says.

The company report, dated Feb. 26 and marked "strictly confidential," was sent to the U.S. Treasury. It warned AIG was again near collapse and said the repercussions would be a "chain reaction of enormous proportions," ABC News reported Monday.

"The failure of AIG would cause turmoil in the U.S. economy and global markets, and have multiple and potentially catastrophic unforeseen consequences," the report said.

One consequence would be that the government would not get back the $130 billion it has invested in the company.

Four days after receiving the report, the government granted AIG another $30 billion.

The Treasury would not comment on the report, ABC reported.

"For a lot of the big financial institutions, if AIG goes under they're going to lose a lot of money," Harvard University economist Kenneth Rogoff said.

But Barry Ritholtz, director for equity research at Fusion IQ, said he was "very skeptical of what's called systemic risk."

"If it just takes scare tactics to squeeze a billion dollars out of you, they'll use scare tactics," he said.

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