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Strategies & Market Trends : Value Investing
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To: Madharry who wrote (33757)3/11/2009 4:47:34 PM
From: Marc Hyman  Read Replies (2) of 78728
 
My point is we should have allowed aig to fail and go bankrupt. when you are a mom and pop shop and you offer credit you take the risk the customer wont pay.

The issue is slightly different with AIG. The were selling insurance. If you have a fire you expect your fire insurance to cover your loss up to the terms of the policy, no? AIG was selling insurance (after all, that's all a CDS is).

Assume I'm a responsible investor. In better days I bought Lehman bonds. As things started going down hill for Lehman I decide to buy insurance in the form of a CDS and AIG was offering the most attractive rates. I'm being responsible by doing so, no? Now Lehman is taken out and shot and as a result my insurance company (AIG) can't pay.

Going back to the fire analogy... If it's just me, too bad. But what if the fire was something like the storms that recently hit SE Australia and everyone used the same insurance company which now can't pay off the claims? Should the government step in and help? If so, who should they help? The insurance company?

I don't know the answer. The powers that be decided to step in this time. Perhaps they were right, perhaps wrong. I'm just saying it's not as simple as "he screwed up, he should pay the price". My belief is that AIG should pay the price but those who depended upon them, not so much.

// marc
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