Keeping the sausage factory going

I wondered yesterday how banks could possibly have believed A.I.G. could really insure every financial asset in the world against losses. It seems obvious they must have expected the government to pay off A.I.G.’s creditors if the economy tanked.

Well, consider this:

When I asked one former A.I.G. executive, Robert J. Arvinitis, what the larger economic purpose of A.I.G.’s credit default swaps were, he laughed. “The purpose was to keep the sausage factory going for the investment banks.”

Posted by James on Monday, March 02, 2009