“American International Group Inc. (AIG), a worldwide insurance powerhouse, avoided bankruptcy in 2008 thanks to generous bailouts from the federal government. Understanding what happened to AIG is critical in evaluating the regulatory reforms enacted since the crisis, and ascertaining whether earlier implementation of those reforms would have prevented the AIG bailout and whether the reforms will make future bailouts less, rather than more, likely. Our ability to craft appropriate regulation and avert future crises is limited as long as our understanding remains incomplete. In a new study for the Mercatus Center at George Mason University, senior research fellow Hester Peirce shows that the causes of AIG’s collapse were more complicated than the conventional accounts—used to justify the regulatory responses embodied in Dodd-Frank—suggest. Dodd-Frank’s derivatives regulatory framework would not have solved AIG’s problems, and Dodd-Frank’s systemic oversight regime would have aggravated them. Unhindered by regulatory curtailment, market processes would resolve AIG-like problems by transferring salvageable assets to private-sector hands more capable of managing them. Bailouts and regulatory control are poor substitutes for market discipline.”