Ex-AIG CEO, the legendary Maurice “Hank” Greenberg who was brought down for fraud, liked to blame the insurance industry’s periodic liability insurance “crises” and its price-gouging of policyholders on claims and lawsuits brought by injured people and once even likened the attorneys for injured people to “terrorists.”
On the other hand, we liked to say that insurance industry mismanagement and greed were the real reasons for the insurance “crises” that would hit policyholders periodically.
With the Federal Reserve now taking over AIG because of mismanagement and greed and asking taxpayers to foot the bill for the company’s shoddy business practices at a cost of $85 billion dollars, wonder who was right?
The truth is AIG’s mismanagement stems from the way it makes most of its money, by investing premiums dollars it collects. A lot of its recent investments have failed to pan out (including many related to residential and commercial mortgages). As a result, they can’t afford to pay off their “bad bets” and still honor their commitments to policyholders.
So taxpayers are left holding the bag.
Lost in this, of course, is the notion that companies that make wagers with other people’s money should be held accountable when they fail to assess the soundness of those gambles—not to mention, when they negligently “bet” more money than they have.
Ah well—at least no one is calling civil justice attorneys “terrorists” this time.
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