April 27, 2009

How could AIG have resisted?

Sir, though Eric Dinallo is right in saying that “Marriage not dating, is the key to healthy regulation” April 27, it is at the same time extremely worrisome to read how he, the New York insurance superintendent, still seems to believe that what brought AIG down was the lack of regulations.

What brought AIG down was that its credit rating of AAA became dangerously super-empowered, when the financial regulators decided that any risk that AIG offered to cover transmitted to the underlying securities a permit for the banks to leverage these 62.5 to 1. I ask. What kind of corporation could have resisted the temptation of not waving that magic AAA wand too much?