AIG: Stock Falls 30%, Bonds and Credit Default Swaps Trading at Distressed Levels

"Even though all eyes have been on Lehman, the potentially more troubling slow-motion train wreck is AIG. The insurer is a large credit default swaps protection writer and provides a host of financing products. Not only is AIG a larger firm than Lehman and could trigger a systemic event in the CDS market alone, but it isn't clear how it could be bailed out if it continues to unravel. Insurers are state regulated; the Fed and Treasury have no relevant expertise and no regulatory authority."