The AIG Panic -- More Imagined Than Real

 
Human error was instrumental in the financial meltdown of 2008/2009,and various bubbles that we have had in the past.

In each case, there has been finger-pointing, usually by anti-business politicians and by bureaucrats whose immediate impulse is to blame big business and bankers; the usual scapegoats. That is the litany in left-wing lexicon.

I have always blamed human error. Whether it be loose monetary policy of the Federal Reserve, in inflating currency, or inappropriate accounting rules for normal securities market situations, actions that hasten the ruin of investment liquidity.

In the case of AIG, the value of its derivative insurance coverage was also being determined on the basis of fictitious existing market value. This time, not on possible claims in the future, at the maturing of company obligations, but at supposed current valuations.

That produced a condition that induced premature bankruptcy, in a panic venue; a rush to judgment when cool heads ought to have been the hallmarks of expertise. (See the Earl J. Weinreb NewsHole® comments.)