Matthew Yglesias posted this tonight concerning the problematic nature of the government providing billions of dollars to pay back AIG’s debt. He writes that:
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.
Like him I have no idea if this actually constitutes fraud, my hunch is not, but it definitely should. Furthermore, I know that the financial risks of AIG going under are tremendous, but does that really mean that we have to bail out a company that so utterly failed at doing what they are in business for: managing risk?