Case Study Of The AIG Bailout

22340 Words 90 Pages
Register to read the introduction… In the end, it is impossible to know for sure whether the $200 billion in aid and nationalization of the largest United States insurance company was the most effective thing to do. V. The (Lack of) Regulation of Credit Default Swaps Parts II and III described AIG’s CDS business and the role the business played in AIG’s collapse leading to the bailout discussed in Part IV. This Part addresses the lack of regulation of CDSs, which some have suggested was a catalyst for all that followed, and offers some thoughts on regulatory reform. A. Regulatory Gap A CDS has characteristics of a security, a contract of sale of a commodity for future delivery, and an insurance contract. Securities are generally subject to regulation under the Securities Act of 1933 (Securities Act)253 and the Securities Exchange Act of 1934 …show more content…
Report of PWG, supra note 276, at 1. 278. Id. 279. See William K. Sjostrom, Jr., Carving a New Path to Equity Capital and Share Liquidity, 50 B.C. L. REV. 639, 669 (2009) (discussing the "fend for themselves" concept). 280. See id. at 666 (discussing problems associated with using a subjective test for sophistication). 281. See, for example, the "accredited investor" test of Regulation D under the Securities Act, 17 C.F.R. 230.501(a), and the "qualified institutional buyer" test under Rule 144A of the Securities Act, 17 C.F.R. 230.144A(a). See also Sjostrom, supra note 279, at 666 (discussing additional contexts in which the objective test approach is used). 282. See NATIONAL ASSOCIATION OF INSURANCE COMMISSIONERS STATE INSURANCE REGULATION 2 [hereinafter STATE INSURANCE REGULATION], available at http://www.naic.org/documents/consumer_state_reg_brief.pdf (last visited Sept. 29, 2009) (discussing functions of state insurance regulations). 283. BLACK’S LAW DICTIONARY 870 (9th ed. 2009). 284. See Robert F. Schwartz, Risk Distribution in the Capital Markets: Credit Default Swaps, Insurance and a Theory of Demarcation, 12 FORDHAM J. CORP. & FIN. L. 167, 181 (2007) (noting that CDSs’ "general form and function reflect many basic

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