So says Felix Salmon:
AIG’s $2.5 billion of 5.85 percent notes due in 2018
plunged 19.5 cents to 33 cents on the dollar as of 9:55 a.m. in New
York, according to Trace, the bond-price reporting system of the
Financial Industry Regulatory Authority.
(quote from here). 33 cents on the dollar? The message is loud and clear: AIG
is toast. This is the massive counterparty failure everybody’s been
scared of, and frankly I’m astonished that the broader stock market
isn’t plunging as a result. No one is prepared for the
repercussions here: the failure of AIG is likely to be an order of
magnitude more harmful than the failure of LTCM would have been. And
it’s not even happening on a Friday, where we could have yet another
Emergency Weekend to try to work things out.