The victims are everywhere with the world’s biggest insurance company AIG shaping up to be the first $US1 trillion collapse. As the HIH failure showed, insurance collapses are very messy and AIG shares plunged 61% to $US4.76 last night, meaning its $US1 trillion in assets are now only supported by $US12.8 billion of equity. No wonder it is asking The Federal Reserve for $50 billion and is even exploring borrowing funds from its own reserves, something akin to raiding the staff super fund.

AIG’s big problem is that 70% of its investments are in property or mortgages and the US financial system is desperately short of capital courtesy of the collapsing housing market. The collapse of Lehman has literally tightened the noose around the whole system and AIG looks most vulnerable at this point.

A few dinosaurs will try to blame hedge funds for this crisis when it fact that particular sector will be one of the biggest victims given that they rely on leverage provided by that soon to be extinct business model known as the independent investment bank.

We’ve seen such a fundamental fraud perpetuate by wholesale providers of investment banking products that investment banks will only survive if they are part of a bigger commercial bank that can rely on steady deposits from punters, rather than wholesale funding. Don’t expect Goldman Sachs and Morgan Stanley to remain independent and the Bank of America CEO this morning predicted America’s 9000 commercial banks will halve in number over the coming years.

Even America’s most diversified conglomerate, General Electric, saw its shares plunge by 8% last night as it has 25% of its assets in property and mortgages.

By the time Asian markets close today, we will have seen the greatest one day destruction of financial institutional value in history. This is what happened to the big seven on Wall Street last night, including links so you can click through and see for yourself.