I’m not even going to pretend to understand what is going on, but I will say this- if I owned 80% of something, and every damned month it cost me a metric ton of money I did not have, it would not be too long before I drove that something off a cliff, hit it in the back of the head with a shovel, or shot it multiple times at close range.
Why can’t we shoot AIG and bury it in the backyard?
Monday, February 23, 2009
AIG is shovel ready
John Cole on AIG,
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2 comments:
Believe me, I wish we could. The problem is they are the largest reinsurer in the world. Killing it would basically create a massive gap for both primary and secondary insurance and cause literally thousands of businesses to violate their covenants to maintain insurance. (By the way it's complete bullshit that they have to maintain the covenants and the only way they can do it is by having insurance with a fundamentally unsound company, but contracts are contracts). Without AIG, there simply isn't enough credit to go around to recreate the contracts based on the lower leverage standards being put in place. For now it's like having a fully faith backed insurance policy.
Just a side thought, AIG's primary business is actually doing surprisingly well as is their general business insurance (primary, not reinsurance). If we wanted to pursue national insurance the gov't could learn a thing or two from how to best run the primary side (again, of which there are relatively minimal problems).
This really is a widows and orphans problem. They are who get hurt when life insurance companies (and that is one big thing that AIG insures and reinsures) fail to meet their commitment.
AIG is a financial conglomerate. The trick is to disentangle mere investors with investments, whom the market can and should screw, from insureds, who shouldn't lose anything if the regulators were doing their jobs.
Utimately, we need some sort of FDIC arrangement for insurance copmanies if state regulation doesn't work. Due to the way this is currently structured (with all insurance companies in pacts to bail out each other), one big insurance company collapse would take down the entire industry.
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