Originally Posted by Newby
AIG was into sub-prime mortgages and verifying nothing. Huge difference with that and regular mortgages.
AIG was writing CDS on bundles of mortgages that were effectively misrepresented. At best, the party seeking the CDS did not understand how to correctly calculate the debt quality based upon the underlying mortgages. At worst, it was outright fraud in misrepresenting them. And yes, AIG wasn't investigating the debt at all. I understand that some companies were basically underwriting CDS via instant messenger.
I had a couple of loans originated by SNMC, they still hold one. Seemed rather thorough in their underwriting.