The AIG Collapse: 2008's Financial Earthquake
American International Group (AIG) embodied the 2008 financial crisis in a single, dramatic fall. The insurance giant’s stock plummeted from over 800 to near zero in a matter of weeks as its massive bets on mortgage securities through credit default swaps backfired. The collapse was so severe that the U.S. government had to intervene with a $182 billion bailout - the largest corporate rescue in American history - to prevent a global financial meltdown.
While AIG’s collapse was driven by complex and interwoven factors that defied traditional quantitative analysis - from counterparty risk to market psychology to government intervention - Sumtyme’s mathematical abstraction approach cut through this complexity. Rather than attempting to model each factor individually, our framework identified the underlying mathematical principles driving price movement. This allowed us to generate consistently accurate directional signals throughout the crisis, even as unprecedented market conditions rendered conventional models obsolete. The AIG case demonstrates how abstraction, rather than exhaustive modelling of fundamentals, can navigate even the most extreme market dislocations.
Our model’s dual timeframe analysis proved particularly insightful during this period. The daily signals first identified bearish conditions in June 2007 - months before the initial mortgage security writedowns and nearly a year before Bear Stearns’ collapse. Weekly signals reinforced this bearish bias, providing clear direction well before AIG’s credit default swaps triggered the largest corporate bailout in history.