American International Group CEO Edward Liddy has made a lot of progress in winding down the insurance giant, having taken the notional value of its derivatives from $2.7 trillion to $1.6 trillion in 2008. Negotiations between the insurer and its counterparties helped bring the number down, along with contracts maturing and the U.S. government terminating $60 billion in credit default swaps. However, AIG faces a major challenge in dealing with the remaining derivatives.

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