AIG Continues to Spread its Germs Around Wall Street

AIG continues to infect Wall Street balance sheets even after receiving billions in taxpayer money.

From today's WSJ:

American International Group (AIG) owes Wall Street's biggest firms about $10 billion for speculative trades that have soured, according to people familiar with the matter, underscoring the challenges the insurer faces as it seeks to recover under a U.S. government rescue plan.

The fresh $10 billion bill is particularly challenging because the terms of the current $150 billion rescue package for AIG don't cover those debts. The structure of the soured deals raises questions about how the insurer will raise the funds to pay the debts. The Federal Reserve, which lent AIG billions of dollars to stay afloat, has no immediate plans to help AIG pay off the speculative trades.

That's the key: these losses are on top of the money already given to the firm.   That money was to be used, in part, to help balance out these bad bets.    The idea being if these bets continued, it could bring down yet more Wall Street firms.

The problem is that as there are few actual securities backing these trades up, it is very difficult to hedge and mitigate the damage, especially now that many on the Street are reluctant to take the other side.

Based on the value of the contracts still outstanding it's entirely likely this won't be the last story like this we see regarding AIG and a continued loss of money.