AIG’s financial difficulties stemmed primarily from two sources:

1. Securities lending. Until 2008, AIG had maintained a large securities lending program operated by its insurance subsidiaries. The securities lending program allowed insurance companies, primarily AIG’s life insurance companies, to lend securities in return for cash collateral, which was then invested in investments such as residential mortgagebacked securities (RMBS). (p5)
   • AIG’s securities lending program continued to be one of the greatest ongoing demands on its working capital, and FRBNY announced plans to create an RMBS facility—Maiden Lane II (ML II) —to purchase RMBS assets from AIG’s U.S. securities lending portfolio.  (p8)
2. Credit default swaps. AIG had been active, through its AIG Financial Products Corporation (AIGFP) unit, in writing insurance-like protection called credit default swaps (CDS) that guaranteed the value of CDOs.^{6  _(p5)}

2011 09 - GAO - Review of Federal Reserve System Financial Assistance to American International Group, Inc - 152p