Posted tagged ‘AIG’

Quicky AIG thought

September 17, 2008

I have even less of a reason to post about AIG than most of the blogosphere, having spent no time studying the insurance business, the interpenetration of insurance with the rest of the financial world or any of that.  But stimulated by this post, (h/t a nervous making post from Bainbridge), I’ve decided to shoot my mouth off anyway.  What else is having a blog for, anyway?

In my defense, I have read with pleasure the foundational paper in the history of the life insurance business,  Edmund Halley’s — yup, that Halley, the comet fellow —  “An estimate of the mortality of mankind, drawn for curious tables of the births and funerals at the city of Breslaw; with an attempt to ascertain the price of annuities upon lives, by Mr. E. Halley, R.S.S.”

I also have read these — probably more on point.  Warren Buffet knows just a little about insurance, and I cannot recommend too highly browsing through his letters to shareholders over the last several years at least.

The reason to look at Buffet’s letters in this context is that like AIG, Berkshire Hathaway is a huge player in the reinsurance market, and Buffet was, if not nearly undone, certainly hammered by a miscalculation, or misunderstanding (stub only) on purchase, of the reinsurance exposure of General Re, bought by Berkshire Hathaway in 1998 — not to mention the prospect of outright fraud at the company (in a transaction involving AIG, btw).

As I say, BRK trembled a bit but did not fall on that miscalculation.  Similarly, if AIG’s risk management turns out to be as bad or worse as General Re’s, the US treasury will take the hit, and I’m reasonably sure that we the taxpayers and citizens of the US will feel some pain — but not a mortal wound.  The question, unanswerable on its face, is whether the risk of the range of possible outcomes in the US purchase of AIG is worth accepting in the face of the risks of the damage an AIG failure would do in the here and now.

But that still leaves me wondering:  are Mssrs. Paulson, Bernanke et. al smarter than Warren Buffet?

Now that one leaves me a little nervous.

(full disclosure — I own the tiniest bit of BRK stock, if anyone cares.  I certainly don’t have enough to have Warren’s phone number, if that’s what you are asking.)

Good Econ/Bailout Writing

September 17, 2008

John Cole has already posted this link, but I thought I’d second his recommendation of David Leonhardt’s column from yesterday on the long term perils of the finger-in-the-dike school of bailout economics.

Leonhardt is one of the handful of really good mass-media econ journalists out there now.  From where I sit, econ writing for the public is in significantly worse shape than writing about the natural sciences, my own area of concern.  (Anyone out there disagree?  Hit the comments, please.)

Which leads to a kind of bleg:  I and some of my colleagues at MIT are thinking about whether we should try to expand the scope of what we consider science writing to encompass at least some of economics now.

Partly, this is missionary zeal — it seems like a real need if journalism in general is to serve any civic function. And in part this reflects both the history of the impact of economic thinking on at least some sciences (see e.g. Darwin’s acknowledged debt to Thomas Malthus) and the penetration of versions, at least, of a number of the ideas and methods of the natural sciences into contemporary economic thinking.   (See, for example, the emergence of behavioral economics as a sub-discipline.)

But before we actually do much about this — creating an econ. strand in our grad program on science writing, for example, or setting up the kinds of boot camps that the MIT Knight Fellowships run or anything else — it would be good to know what folks out there think the besetting problems are in the attempt to communicated economics to the public.

Any thoughts?

Image:  Poster for the “War of Wealth” by Charles Turner Dazey, a play that opened February 10, 1896.  This image is available from the United States Library of Congress‘s Prints and Photographs Division under the digital ID var.0760.  Source:  Wikimedia Commons.