The taxpayer bailout of giant American International Group (AIG) became necessary largely because of AIG's poor risk management of its financial products and because deregulation of over-the-counter derivatives, including credit default swaps, let the company get away with its risky behavior.
That's according the final report by the government's Financial Crisis Inquiry Commission.
The report also cites AIG's success in setting up its financial products unit in London and selecting a weak U.S. regulator, the Office of Thrift Supervision, as contributing to the firms' failure.
Because of the deregulation, state regulators were barred from regulating AIG's credit default swaps, even though they were similar to insurance contracts. If that deregulation, which began under the Clinton Administration, had not happened, the commission suggests that events might have been different.
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