It appears AIG, rather than WaMu or Morgan Stanley or any other of a host of possible candidates, wilbe the next large company to crater in the current financial crisis we are having. Mind you, I know full well that more Murkins will be familiar with the latest developments in the latest OJ trial than will be familiar with the financial implosion taking place right now. Still, how many such failures can occur before the overall economy begins to implode as well?

Latest on AIG:

http://dealbook.blogs.nytimes.com/2008/09/...r/index.html?hp

This one will matter a little more since, from a market cap perspective, it's bigger than all that have failed so far, lumped together. Check out this data for market capitalization of some financial companies, end of last year, vs now.

In terms of what difference it makes, AIG is a big player in the CDS -- credit default swaps -- portion of the derivatives market. And, to boot, they provide a lot of CDSs to EUROPEAN BANKS. This means that as AIG's credit is downgraded, the CDSs that the European banks have with AIG become less valuable as a source of credit assurance. This means the banks will have to either add collateral or, in other respects, make changes in their balance sheets, potentially forcing some of them closer to default.

Put simply, it's that domino effect thingy.

Here's a link to a good article explaining why AIG matters:

http://www.bbc.co.uk/blogs/thereporters/robertpeston/

Yeah, it's a bit of a sticky wicket. None of the banks believe in each other's balance sheets. Some don't even believe in their own. The CDS' are an enormous baileywick, and IMO are just too huge to cover. It will be interesting to see how this is dealt with. Bitter poison for the fatcats to contemplate; with large consequences for us all.