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This Arcane Deal at AIG Reveals a Shocking Truth About Pre-2008 Mortgages

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AIG's (AIG - Get Report) stock surged Tuesday after the company accomplished what it described as a first: obtaining almost $300 million in reinsurance for home-loan policies issued before a meltdown in the $15 trillion U.S. mortgage market sparked the 2008 financial crisis.

The move shows that investors are once again willing to place a monetary value on mortgage products from the period, something many had been loath to do after widespread defaults starting in 2006 rendered the worth of such securities impossible to measure. That eventually led to the collapse of investment bank Lehman Brothers and left AIG on the hook for more than $500 billion in credit-default swaps that were written to protect investors from just such an invent.

In the aftermath, the government funneled $182 billion in bailout funds to AIG to keep it afloat and prevent further shocks to a fragile financial system. While the government eventually recouped its investment and AIG underwent significant restructuring, the New York company agreed to further changes amid pressure from activists early this...


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