This new tool CDOs were prevalent among many of the investment banks and financial institutions who were dealing in loans and insurance products (Schich, 2009). The major difficulty of CDOs was that it did not discriminate between the debts qualities as it involves every type of debt from the highly secured to highly risky into one category. This debt containment into one group would lead to build tranches, which involves every type of debts with different maturity periods, rewards and risks (Baranoff, 2012). Tranches become one of the basic causes of subprime crisis that is the responsible economic crisis which America, Europe and the rest part of the world has experienced in recent years (Stecker, 2009).
CDOs are used by the AIGFP in a different form that is called Credit Default Swap (CDS) because the chances of paying out for this type of insurance were hardly to happen. During 1994 with the declaration of J.P. Morgan, another financial giant, CDS was considered to be the most significant and secured way to come out from the risk of repaying (Danielsson & Halili, 2012). AIG and other such large insurance companies have adopted CDS in prospects of making rare payments if any default is being made. Within five years from the adoption during 1999-2000, the AIGFP was having with revenues hiked with more than 3 billion amounted to $737 million that is 17.5 percent from the entire group total revenue.