Question

Of all the insurance companies hit hard by the mortgage market collapse, AIG was revived by the federal government. That is mainly because _____.

a) Too many innocent homeowners would have lost their homes
b) It covered about three-quarters of the insurance industry
c) There were international investors in the company
d) If it had been bankrupted, it would have had a severe ripple effect in the financial market

Answer 1

AIG was revived by the federal government because its bankruptcy could have caused a severe ripple effect in the financial market, affecting major banks and the larger economy.

Step-by-step explanation:

AIG was rescued primarily because: d) If it had been bankrupted, it would have had a severe ripple effect in the financial market. AIG was the largest insurance firm in the country, and its collapse would likely have led to the default of leading banks, further destabilizing the financial system. This was a scenario the federal government aimed to prevent, as a failure of these major institutions could have cost taxpayers heavily and propelled a chain reaction of financial crises. The Federal Reserve intervened and took over AIG's financial obligations by essentially purchasing the highly indebted company, ensuring that AIG could continue to pay insurance claims and support the stability of the financial markets.