“I would radically have to change my view about where the market’s going to go if AIG failed,” Cramer continued, “because it’s so unquantifiable what they have.”
The Mad Money host doubts this will happen, though, saying AIG is “too big to fail.”
It’s important for investors to know the different kinds of insurance and why AIG in particular is in so much trouble. There’s property, casualty, life and other types of quantifiable insurance, and then there’s insurance for financial instruments. It’s this latter kind, used to back complex derivative securities, that carries so much risk, both known and yet to be known, that is hurting AIG.
Cramer wasn’t recommending any particular stock, but he did say names like Allstate , MetLife, Prudential , Chubb and The Travelers, which dealt mainly in the safer property, casualty and life insurances, stand to gain the most by any AIG fallout. Companies like MBIA, Ambac, and PMI Group operate in the same financial insurance business that AIG’s struggling with.
Even among these troubled names, though, there’s a model for redemption. MBIA’s stock had dipped after pieces of the business began to suffer. But regulators intervened and the stock recovered. Cramer said they should do the same with AIG.
“AIG must not fail,” he said.
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