What Effect Did AIG's Bailout, and the Preceding Events, Have on Its Competitors?

Egginton, Jared F.; Hilliard, James I.; Liebenberg, André P.; Liebenberg, Ivonne A.

doi:10.2139/ssrn.1373225

Cited by 8 publications

(10 citation statements)

References 28 publications

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“…March 14 (the Bear Stearns deal), June 2 (ratings downgrade), June 9 (announcement of major losses), August 19 (secret talks to raise capital stall), September 11 (news about a search for a buyer) and September 15 (bankruptcy). For AIG, we examine four earnings announcement dates between 2007 and its bailout in September 2008, each with a negative earnings surprise, and the two dates involving financial problems at AIG (February 11, 2008 andSeptember 15, 2008) analyzed by Egginton et al (2010). 34…”

Section: Aigmentioning

confidence: 99%

Financial Firm Bankruptcy and Contagion*

Helwege

Zhang

2015

Review of Finance

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The Lehman bankruptcy highlights the potential for interconnectedness to cause negative externalities through counterparty contagion, but the externalities may also arise from information contagion. We examine contagion from troubled financial firms and find that counterparty contagion is greater during recessions and in cases of riskier firms and larger and more complex exposures. However, the counterparty exposures are small, especially among banks that face diversification regulations, and do not typically cause a cascade of failures.Information contagion is stronger for rivals in the same locale or the same line of business and is stronger in cases of distress than in bankruptcies.

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Section: Aigmentioning

confidence: 99%

Financial Firm Bankruptcy and Contagion*

Helwege

Zhang

2015

Review of Finance

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“…As a result, AIG should not be viewed as a typical life insurer. The effect of the AIG bailout on the stock returns of AIG's competitors is analyzed in Egginton et al (2010) and Grace (2011); the effect of the bailout and subsequent government ownership on AIG's pricing strategy is examined in Eckles and Hilliard (2011). 6 There are various definitions of systemic risk.…”

Section: Introductionmentioning

confidence: 99%

External Financing in the Life Insurance Industry: Evidence From the Financial Crisis

Berry-Stölzle

Nini

Wende

2014

J of Risk & Insurance

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The financial crisis and subsequent recession generated sizable operating losses for life insurance companies, yet the consequences were far less significant than for other financial intermediaries. The ability to quickly generate new capital through external issuance and dividend reductions let life insurers maintain healthy levels of equity capital. We use this experience to examine the causes and consequences of external capital issuance by U.S. life insurance companies. We show that, in general, new capital is issued both to support the growth of new business and to replace capital depleted by operating losses. This second channel is particularly important during macroeconomic recessions. Notably, we do not find any evidence that insurers had difficulty generating new capital, unlike other financial service providers that required large amounts of public support. For life insurers, what changed following the financial crisis was the demand to raise external capital, but the supply of external capital appears to have remained constant.

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“…Likewise, saving only AIG would leave arbitrage opportunities intact since it, too, would be only a minimal intrusion into financial dromocracy. Yet, by the same token, the localized response to the general accident was not enough, as a sense persisted that AIG might have been a singular occurrence (Egginton et al 2010). Spreads indicating market turbulence reacted adversely: the TED spread between the three-month LIBOR average and the yield of three-month U.S. Treasury Bills, commonly used as indicator for market turbulence, did decline somewhat from 3.03 on 17 September 2008 to 2.9 on 26 September 2007, but reached its peak at 4.3 only on 14 October 2008 (Federal Reserve Bank of St. Louis 2015).…”

Section: Lehman Aig Tarpmentioning

confidence: 99%

Dromocratic Arbitrage and Financial Bailouts

Engel¹

2016

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"if you're playing anyway so you might as well play to win but I mean even when you win you have to keep playing!"-(Gaddis 2012: 647) This paper [1] examines the function of financial instability for what I call financial dromocracy: the global dominance of financial arbitrage as the contemporary form of capital accumulation, sustained in a space in which all political, economic, social, and cultural barriers are constituted as so many arbitrage opportunities. I maintain that financial dromocracy requires a certain, constant amount of turbulence to function, thereby imposing its instability on real economies and policy-makers alike in a form of governance which is ultimately parasitical. I reject the "common postulate of international relations that transnational markets are brittle structures unless backed by a powerful state or supported by a group of states acting in concert." (Cerny 1994: 224) Even the United States, the hegemon of hegemonic stability theory, is embedded into and shaped by financial dromocracy (Eichengreen 1996). I show this particularly for the 2008 Troubled Asset Relief Program (TARP), the biggest of the U.S. Treasury's bailouts of the American financial system after the collapse of Lehman Brothers. Far from showing the strength of the U.S. Treasury as financial stabilizer of last resort, TARP showed that this strength is inscribed into financial dromocratic rule. My argument proceeds in three steps. In the first section, I use Paul Virilio's concept of dromology to describe the speed-space of financial dromocracy. I argue that this dromocracy's modus operandi is arbitrage, i.e., the quasiinstantaneous exploitation of differentials of price, location, risk, or other asset characteristics, for a profit. Since arbitrage is only quasi-instantaneous-subject to the transmission speed of electric impulses-financial dromocratic speed-space is at least bifurcated: a real material space of electric transmission, and the space of becoming-arbitrage, where all material (social, legal, political) barriers are constituted as so many opportunities for profit. Examining two empirical examples-the events of May 2010 between riots on Greece's Syntagma Square and turbulences within Wall Street's high-speed trading systems as well as the events unfolding June through August 2015 between Chinese stock market corrections and U.S. Treasury Securities-the section argues that a third layer of financial dromocratic speed-space must be considered, a layer of ripple effects in which each differential arbitrated serially influences all other differentials across globally integrated trading platforms. It follows from this description that the core necessity of financial dromocracy is a permanent level of financial instability allowing differential changes to ripple outward. In the second section of this paper, I examine the state's function in the trifurcated speed-space of financial dromocracy. I maintain that states are constituted within financial dromocracy as asset producers-sovereign bonds and securities who can ...

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What Effect Did AIG's Bailout, and the Preceding Events, Have on Its Competitors?

Cited by 8 publications

References 28 publications

Financial Firm Bankruptcy and Contagion*

Financial Firm Bankruptcy and Contagion*

External Financing in the Life Insurance Industry: Evidence From the Financial Crisis

Dromocratic Arbitrage and Financial Bailouts

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