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US insurance giant teeters, posts record loss -

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Reporter: Peter Ryan

ELEANOR HALL: But first to the turmoil on global share markets which are plunging in response to
the announcement of the biggest corporate loss in US history.

The world's biggest insurance company, American International Group, posted an unexpectedly high
$62-billion loss overnight.

The US Government immediately intervened with $30-billion to ensure the survival of the insurer -
which is regarded as 'too big to fail'.

But the fear of even more instability in the world's financial institutions has sent investors
running for the doors and the world's stock markets have hit lows not seen in more than a decade.

The Australian share market plummeted more than two per cent in early trade.

With the latest here's business editor Peter Ryan.

PETER RYAN: In terms of impact and importance, the potential failure of American International
Group rivals last September's collapse of Lehman Brothers. The near catastrophic turning point when
the credit crunch became the global financial crisis.

On Wall Street investors were selling first and asking questions later taking the Dow Jones
Industrial Average below the key support barrier of 7,000 points for the first time since 1997.

SAM STOVALL: We are rivalling the bear market of 1937, 1938 and we are still a good 30 percentage
points away from the worst decline from '29 to '33.

PETER RYAN: Sam Stovall, the chief investment officer at the ratings agency Standard & Poor's, says
memories of the Great Depression have inspired, fear and suspicion - amid expectations of more
negative news to come.

SAM STOVALL: The market basically has to feel that they've got their arms around all of this. The
market does tend to bottom out well before the fundamentals do. About five months ahead of the
recession typically ends about nine months ahead of an earnings trough or an unemployment peak.

But really we have to be able to look beyond this six-month valley to say have we really priced in
all the negative news. Have we learned all of the negative news regarding financials and I don't
think most investors feel that that's the case.

PETER RYAN: AIG's quarterly loss of $US61.7-billion, the biggest in American corporate history
illustrates a company burning money as asset values plunge around the world and liabilities
skyrocket.

The US Government provided a $150-billion cash injection last year. Today they were forced to hand
over another $30-billion bailout.

MARK DOW: It is kind of like in poker when you are pot committed. This company is of systemic
importance and you have to protect it. Obviously that is the conclusion that the authorities have
come to or they wouldn't have kept supporting it the way they have.

PETER RYAN: Investment analyst Mark Dow says the collapse of Lehman Brothers delivered a hard
lesson that massive institutions like AIG are too big to fail.

MARK DOW: They insure a lot of people, the reinsure a lot of people. They are in the financial
markets as a counterparty to a lot of different companies that are important, so yeah, just like
Citigroup and a lot of other banks are too big to fail, it is.

And their equity may get wiped out but their liabilities need to be protected or else the whole
system comes down and we saw a little bit of what that looked like when Lehman came down in
September.

PETER RYAN: Until September last year, AIG was little known outside insurance and banking circles.
Now the world is coming to grips with just how big and important it is.

ALI VELSHI: There is no other method, there is no shadow method by which you can insure companies
and the bottom line is without insurance, business grinds to a halt.

PETER RYAN: CNN finance expert Ali Velshi used the early days of the shipping insurer Lloyds of
London to describe the AIG business which is now finding itself in torrid waters.

ALI VELSHI: Somebody would say that we are sending a shipment of goods across to America - will you
underwrite it. And what they do is they write their names under the name of the ship that was going
and the underwriter was the person who said, I get a piece of the profits if this ship makes it
across to America or wherever it is going; but I pay a part of the cost if the ship doesn't go
away.

That is what you need to do business and AIG is the biggest in the world at that business. There is
just no way. We've looked at this with hurricanes. We've looked at it with all sorts of things.
There is just no way to pull that kind of risk money.

Bottom line is that it is that tied into the economy and AIG going away is just not a logical
thought.

PETER RYAN: AIG's newly appointed chairman Ed Liddy was sounding surprisingly upbeat today despite
the levels of fear and taxpayer funded debt.

But he is confident the market will eventually turn and that some of the $180-billion already
stumped up will soon be paid back.

ED LIDDY: In some cases we will sell businesses and in some cases we will consider an initial
public offering. We will need the market to get a little bit better as we go but sometimes selling
things into the public is actually different than trying to sell it to one company that has got to
go out and raise a lot of money.

And they may not have the capacity to do that because they are worried about the capital position
they have being adequate to support the business they are in.

PETER RYAN: The potential ramifications of an AIG failure or the need for another US Government
bailout took an early hit on the Australian share market which fell to a new five-year low in early
trade.

With today's falls of more than two per cent, Australian stocks are getting closer to an important
psychological barrier of 3,000 points.

And the news is getting worse for anyone in the finance sector with the French investment house
Societe Generale announcing plans to sack a third of its Australian workforce.

ELEANOR HALL: Business editor Peter Ryan.