Is AIG a Ponzi scheme?

Maybe. The “assets” of many AIG companies consist heavily in the untradable stock of other AIG companies, and they’ve sold huge amounts of reinsurance to one another as well.

This is really, really scary.

Maybe the reporter got it wrong, but if not the situation is explosive. AIG subsidiaries are in a huge daisy chain, reinsuring one another’s risks and holding large chunks of the assets that are supposed to back up their insurance policies in the form of unlisted and untradeable stock in one another. The Feds don’t want to shut down AIG because the government still hopes to get its money back, none of the states really knows what it’s doing (and AIG can shift assets around as each state examination happens), and the policyholders (as opposed to the counterparties in derivatives transactions) may be at serious risk.

Time for state-level regulation of insurance companies to go the way of the buggy whip. But in this case, the federal government seems to be part of the problem.

I can’t understand why there hasn’t been more fuss about this since the story broke yesterday.

Author: Mark Kleiman

Professor of Public Policy at the NYU Marron Institute for Urban Management and editor of the Journal of Drug Policy Analysis. Teaches about the methods of policy analysis about drug abuse control and crime control policy, working out the implications of two principles: that swift and certain sanctions don't have to be severe to be effective, and that well-designed threats usually don't have to be carried out. Books: Drugs and Drug Policy: What Everyone Needs to Know (with Jonathan Caulkins and Angela Hawken) When Brute Force Fails: How to Have Less Crime and Less Punishment (Princeton, 2009; named one of the "books of the year" by The Economist Against Excess: Drug Policy for Results (Basic, 1993) Marijuana: Costs of Abuse, Costs of Control (Greenwood, 1989) UCLA Homepage Curriculum Vitae Contact: