The AIG mess gets better:
Amid the flap over bonuses at American International Group Inc. two of the company’s top managers in Paris have resigned. Their moves have left the giant insurer and officials scrambling to replace them to avoid an unlikely but expensive situation in which billions in AIG trading contracts could default.
Representatives of the Federal Reserve, AIG’s lead U.S. overseer, are talking with French regulators and AIG officials to deal with the consequences of a complicated legal scenario in which the departures of the managers in Banque AIG, a subsidiary of AIG’s Financial Products unit, could trigger defaults in $234 billion of derivative transactions, according to people familiar with the situation and a document AIG provided to the U.S. Treasury.
I have no experience with this realm of the shadow finance industry, no experience with contracts, and no idea if this is normal, but this doesn’t seem to make any sense. Why exactly would we allow contracts to be written that could trigger hundreds of billions of default swaps if one person decides they want to quit their job. What kind of insanity is this? Is there a reason for this? Is there a legitimate and logical explanation? For an outsider, this just looks completely nuts. It really looks like they have bought their own bullshit and really do think they are the masters of the universe.
*** Update ***
More here from Emptywheel, but many of you in the comments suggest this is not too shocking or quite normal for contract law. Like I said, I have no experience with this sort of thing, and often times things that looks crazy have very legitimate reasons for existence. Having said that, I would still suggest that any system that allows for so little redundancy that the removal of two people can trigger a quarter trillion in defaults is a house of cards built in breezy weather on a fault line over a nuclear bomb.