As I understand it, what AIG was doing was providing insurance for collateralized debt obligations which were junk without insurance but with insurance became investment-grade assets and that this insurance was a credit default swap. The problem was that they undervalued the cost of this insurance so that when some of these CDOs began to default, there wasn’t enough money to cover them. I also read on CNN Money the other day that the CDS market is working. These items seem to be contradictory if I understand them correctly. I don’t think I do, but what am I missing?
Thanks,
Rob