AIG Financial Products Corporation (AIGFP) is a subsidiary of the American International Group, headquartered in New York, New York, with major operations in London. The collapse of AIG Financial Products, headquartered in Wilton, Connecticut, is considered to have played a pivotal role in the global financial crisis of 2008–2009.
In spring 2008, AIGFP suffered enormous losses from credit default swaps that it issued and traded in earlier years. Company officials issued the swaps believing they would have to pay out few, if any, of them. But as the financial crisis worsened during early 2008, many companies began to default on their debt, forcing AIGFP to assume losses far greater than anticipated.
The losses at AIGFP caused credit agencies to downgrade the credit rating of the entire AIG corporation in September 2008. The resulting liquidity crisis essentially bankrupted all of AIG. Many [who?] believed that AIG was too big to fail and that an AIG bankruptcy could cause an already fragile financial system to collapse, prompting the Federal Reserve Bank to extend an $85 billion line of credit to AIG. As a result, the Federal Reserve was issued a stock warrant for 79.9% of the equity in AIG, effectively nationalizing the world's largest insurer. Shortly after, U.S. Treasury Secretary Henry Paulson announced the treasury's desire to break up and liquidate most of AIG. The company has since sold off many of its subsidiaries to raise the cash to repay the Federal Reserve. AIG closed AIGFP in December 2022, and the subsidiary filed for Chapter 11 bankruptcy shortly after.
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