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American Insurance Group, until recently the biggest insurance company in the world, was brought to its knees not by its sponsorship of Manchester United or by any serious flaws in its ability to price risk and offer cover for those of its business and personal customers who were buying the usual kinds of products.
All the problems that truly massive bailouts from the US authorities have yet to solve stem from the division - based in London, as it happens - that provided insurance for credit default swaps. AIG products were at the heart of the process that made toxic waste saleable outside the banking system. Those same products - and potential claims on them - are therefore at the very heart of the global financial meltdown.
With AIG coming under pressure again and, according to apparently well-informed rumour, poised to announce a loss of $60 billion (£41.4 billion) for the quarter - which is the largest-ever for such a short period -rumours swirl that yet more government money will be needed to stabilise the business and cover the losses on those credit default swaps. It is said, however, that contingency plans are also being prepared to put it into bankruptcy if a deal cannot be struck with the US government in talks scheduled to take place at the weekend.
Given that the story is already in the public domain - albeit without confirmation - it seems unlikely that markets will be willing to wait that long, but that is another issue. What I find difficult to fathom is what happens to all that credit-default insurance if the company does file for bankruptcy?
The experience when Lehman folded last autumn was traumatic for markets because it was so central to so much financial market activity. Clarifying the status of trades where it is a counterparty still goes on, and could theoretically in the more extreme cases take decades to resolve. Would AIG's collapse be anything less traumatic?
But on the other hand perhaps it would remove a massive uncertainty. No one knows what a lot of this stuff is worth, but holders appear to take some comfort from the assumption that AIG will cover their losses. If that were invalidated by its bankruptcy, would it force banks and financial institutions to confront the losses and deal with them? Or would it spark a further round of collapse?
The trouble is no one can possibly know the answer to that. But given that the gross face value of these derivatives is several times global GDP, is bankruptcy really the way to find out?
Mistake to take a shine to gold
Although people think the value in shares comes from capital growth, the annual London Business School study of long-term returns on equities shows clearly that at least 80% of the return in fact comes from reinvested dividends. The same holds true for commercial property, and even bonds.
That is one of the things which puts me off gold. Central banks and other highly sophisticated players can make a bit of income by lending gold to the market, but no one else can. For private investors, not only does gold provide no income but it is likely to cost money for storage and safe keeping. Without an income stream, and being purely reliant on capital gains, it is hard to see how it can make serious money for an investor.
That may seem an odd thing to say at times like these when the price is hitting record highs. But the demand comes in large part from people who are buying not to make money but to preserve what they already have. They are betting on a catastrophe, or if you will, insuring against it. A widespread economic collapse may make other assets worthless, but they believe gold will hold its value.
They may be right in that - I hope we never have to find out - but if we avoid such an outright cataclysm, it is easy to see an investment in gold at today's price resulting in a loss. Note that it was several hundred dollars an ounce cheaper when the latest stage of the financial crisis began last autumn, so it has already attracted a lot of the nervous money.
It could rise further if the current febrile atmosphere continues, but nevertheless one might also think that a lot of the doom and gloom is already in the price.
We have been here before, and it was no fun then. In 1981, on the back of a severe recession in the United States and Europe and an imminent banking crisis brought on by the threat of Mexican and Brazilian defaults, the metal soared to more than $800 an ounce.
It was a price that was unheard of at the time - and unheard of again for the next 20 years. Few who bought the metal in those heady days made money from it. Not only did it more than halve but so did the US dollar's value because of inflation.
On balance therefore, one might think that this is quite the wrong time for private retail investors to get into the metal - and why we can expect a rash of new gold funds encouraging them to do just that.
