A $ Trillion in assets? But what are the liabilities?
Lehman had $635 Billion in assets, but $613 Billion in liabilities, and some of those assets were surely derivatives that were priced at a higher value than what reality was.
I'm basing this mostly on the Tom Sullivan shows of the last two days. My understanding is that AIG's assets include some very expensive property, corporations, and stuff like that.
The problem I believe is that it will take time to sell the assets otherwise the assets would have to be virtually given away to sell them immediately.
They are the insurer on up to $45T in credit swaps. As the credit market contracts (it has to, there is no choice) the insurance has to be paid out on one or the other. They are part of the problem, just like the bond insurers were part of the MBS problem. Keeping them around extends the problem. Letting them die risks complete financial implosion. Two bad choices, so we naturally chose the later badness.