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Insurance giant AIG reported a 2009 fourth-quarter loss of $9 billion, leading to speculation that there is plenty of work to be done on the financial sector front. However, things may not be that bad for AIG. Indeed, the loss is largely due to restructuring, reports CNN Money:

But recently, the company had begun to turn its financial situation around. Prior to the past quarter, AIG had recorded two profitable quarters in a row.

The fourth-quarter loss was due to billions of dollars in restructuring costs that AIG logged in the last three months of 2009.

In December, AIG sold large stakes in Alico and AIA, two giant foreign life insurance businesses, to the U.S. government. In exchange for those transactions, the Federal Reserve reduced the amount AIG has to repay taxpayers by $25 billion. AIG said it took a $5.2 billion charge for that sale last quarter.

AIG has also been selling other insurance company holdings, and taking losses on those. The idea is to stabilize AIG’s own insurance business, and restructure the company.

Fed scrutinizes credit default swaps

Another move being made is that the Federal Reserve is now ready to scrutinize credit default swaps. These instruments became infamous during the mortgage market disaster, since they helped hide the amount of bad debt that was piling up. Apparently, these credit default swaps were also used by American companies to help hide the extent to which Greece was getting into debt.

In fact, credit default swaps were used by Wall Street firms like Goldman Sachs to bet that Greece would default on its debt, even while these firms used balance sheet trickery to hide some of the mounting problems. This has the Fed wondering what other debacles credit default swaps might have had a hand in.

At any rate, it looks to be an interesting day today, as we await further economic data, including January existing home sales.