Sullivan and Yglesias on AIG fraud

Sullivan links to a great post by Yglesias

The whole idea of the insurance industry is that if I buy insurance from you, you pay off the claims. Absent ability to pay claims, there’s no business there at all. It’s just fraud. Whether or not it meets the legal standard for fraud, I couldn’t say. But in ordinary language sense, it’s a fraud—you’re selling a service you have no capacity to deliver. And AIG executives made a bunch of money engaged in it. Felix Salmon says: “I wouldn’t be surprised to learn that Hank Greenberg was still a billionaire, even as the policies his company wrote have cost the average American household some $1,600. It’s time for his wealth to be confiscated: it might be only a drop in the bucket compared to AIG’s total losses, but it would feel very right.”

(Emphasis mine.) I agree. As and insurance company, you need to be more conservative: if something bad happens, it’s your business to help the people who bought your product survive. So that means that the nature of an insurance company is to hedge, and prepare for bad things. AIG didn’t, gave more insurance against bad things than it could ever possibly pay out. And now their irresponsible and unethical business practices (yes, AIG used to be a private sector corporation) is costing every single American hundreds of dollars.

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One thought on “Sullivan and Yglesias on AIG fraud

  1. […] noted previously that AIG’s financial products departments was apparently selling everyone a freakin’ bill of goods – insurance that it could not and could basically never back up. So not only did those idiots ruin […]

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