"We had people bailing out of the market [yesterday] on speculation that things were going to get dramatically worse," said Buckingham, who owns AIG shares in his portfolio. "Now, if they don't, you'll see a lot of that negative action unwind."
Fed and Treasury officials initially had turned a cold shoulder to AIG when company executives pleaded Sunday night for the Fed to provide a $40 billion bridge loan to stave off a crippling downgrade of its credit ratings as a result of tens of billions of dollars of losses related to insurance investments that have turned sour.
But government officials reluctantly backed away from their tough-minded approach after a failed attempt to line up private financing with help from JPMorgan Chase and Goldman Sachs.
Another reason that AIG posed systemic risk is that it might have been forced to liquidate real estate and other assets at fire sale prices - a move that could drive property prices lowers and force countless other companies to mark down the value of their own holdings.
The complexity of AIG 's business, and the fact that it does business with thousands of companies, make its survival critical at a time when there is stress throughout the financial system worldwide.
"It's the interconnectedness and the fear of the unknown, meaning the impact of a failure," said Roger Altman, a former Treasury official in the Clinton administration. "But size is a factor; you can't ignore that. The prospect of world's largest insurer failing, together with the interconnectedness and the uncertainty about the collateral damage - that's why it's scaring people so much."
The Los Angeles Times and The New York Times contributed to this article.
