Why AIG matters: No. 1 insurer touches everyone and everything in some way

If you thought the collapse of Lehman Bros. was a big deal, experts say it's peanuts compared with what would have happened if American International Group went under.

AIG's reach is vast. Although it has a small presence in New Jersey, the company is the largest insurer in the world. If it were to fail, experts said, the effects would be felt from Wall Street to Main Street, and all the way to Europe and Asia.

"AIG matters a lot more than Lehman Bros.," said Jeffrey Herrmann, a Saddle Brook lawyer and head of the securities litigation and regulatory enforcement section of the New Jersey state bar association. All the major financial institutions deal with AIG, he said.

"In one way or another, they have AIG backing up some of their risk," he said. "It would be terrible."

After days of tense negotiations, the federal government agreed late last night to loan AIG $85 billion in exchange for a 79.9 percent stake in the company. That might seem like a steep price to pay, but experts say the reach of AIG threatened the stability of the global economy.

Or as New York Gov. David Paterson told CNBC earlier in the day: "It affects jobs, it affects policyholders, it affects drivers. This is a catastrophic problem waiting if we're unable to contain it."


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