After I read this
http://www.sott.net/articles/show/193913-5-Ways-the-Government-Used-Our-Money-to-Save-Big-Banks-and-Screw-Us article on SOTT news, I was curious and stumbled upon this in Wikipedia:
The Invisible Bankers: Everything the Insurance Industry Never Wanted You to Know
The title refers to the fact that the insurance industry controls nearly as much money as the banking industry, yet remains essentially unregulated by the Fed, and is haphazardly regulated by the states. Some argue that this may give the companies perverse incentives in their dealings (e.g. AIG's recent woes).
_http://en.wikipedia.org/wiki/The_Invisible_Bankers:_Everything_the_Insurance_Industry_Never_Wanted_You_to_Know
Industry Loss Warranties, often referred to as ILWs, are a type of reinsurance or derivative contract through which one party will purchase protection based on the total loss arising from an event to the entire insurance industry rather than their own losses.
_http://en.wikipedia.org/wiki/Industry_Loss_Warranties
It is not unusual for a reinsurer to buy reinsurance protection from other reinsurers. For example, a reinsurer that provides proportional, or pro rata, reinsurance capacity to insurance companies may wish to protect its own exposure to catastrophes by buying excess of loss protection. Another situation would be that a reinsurer which provides excess of loss reinsurance protection may wish to protect itself against an accumulation of losses in different branches of business which may all become affected by the same catastrophe. This may happen when a windstorm causes damage to property, automobiles, boats, aircraft and loss of life, for example.
_http://en.wikipedia.org/wiki/Reinsurance
Alternative Risk Transfer (often referred to as ART) is the use of techniques other than traditional insurance and reinsurance to provide risk bearing entities with coverage or protection. The field of ART grew out of a series of insurance capacity crises in the 1970s through 1990s that drove purchasers of traditional coverage to seek more robust ways to buy protection.
Most of these techniques permit investors in the capital markets to take a more direct role in providing insurance and reinsurance protection, and as such the broad field of ART is said to be bringing about a Convergence of insurance and financial markets.
Key market participants
Banks, notably JPMorgan Chase, Goldman Sachs, Bank of America and Citibank.
Insurers, including AIG, Zurich, USAA and XL Capital
Reinsurers, notably Munich Re, Hannover Re and Swiss Re both directly and through their capital markets subsidiaries.
Brokers including Artex Risk Solutions, Willis, Marsh, Aon Corporation, Benfield, and RK Carvill.
_http://en.wikipedia.org/wiki/Alternative_Risk_Transfer
So AIG is one of a major re insured insurance companies.
Chronology of September 2008 liquidity crisis
On September 16, 2008, AIG suffered a liquidity crisis following the downgrade of its credit rating. Industry practice permits firms with the highest credit ratings to enter swaps without depositing collateral with its trading counter-parties. When its credit rating was downgraded, the company was required to post additional collateral with its trading counter-parties, and this led to an AIG liquidity crisis. AIG's London unit sold credit protection in the form of credit default swaps (CDSs) on collateralized debt obligations (CDOs) that had by that time declined in value.[18] The United States Federal Reserve Bank announced the creation of a secured credit facility of up to US$85 billion, to prevent the company's collapse by enabling AIG to meet its obligations to deliver additional collateral to its credit default swap trading partners. The credit facility provided a structure to loan as much as US$85 billion, secured by the stock in AIG-owned subsidiaries, in exchange for warrants for a 79.9% equity stake, and the right to suspend dividends to previously issued common and preferred stock.[16][19][20] AIG announced the same day that its board accepted the terms of the Federal Reserve Bank's rescue package and secured credit facility.[21] This was the largest government bailout of a private company in U.S. history, though smaller than the bailout of Fannie Mae and Freddie Mac a week earlier.
_http://en.wikipedia.org/wiki/AIG
So insurance companies has their own "insurance" for monetary loss. It is how the way I learned when I worked for Winterthur Insurance Company, nine years ago.
The point is insurance companies insure each-other against financial crisis and form a circle within these companies, backed up by major bank groups, e.g. Winterthur was financed by Credit Suisse.
Then how on Earth is possible, like AIG a major insurance group to go bankrupt?
"suffered from liquidity crisis"
In contrast, a liquidity crisis is triggered when an otherwise sound business finds itself temporarily incapable of accessing the bridge finance it needs to expand its business or smooth its cash flow payments. In this case, accessing additional credit lines and "trading through" the crisis can allow the business to navigate its way through the problem and ensure its continued solvency and viability. It is often difficult to know, in the midst of a crisis, whether distressed businesses are experiencing a crisis of solvency or a temporary liquidity crisis.
So these guys couldn't expand their business, because they were short on money? Meanwhile they have money just like major banks?!? Especially a big international insurance co. like AIG!
This is sounds like just another lie to me!
Just an other thought:
Using game-theoretic modeling, Professors Michael R. Powers (Temple University) and Martin Shubik (Yale University) have argued that the number of active reinsurers in a given national market should be approximately equal to the square-root of the number of primary insurers active in the same market
_http://en.wikipedia.org/wiki/Reinsurance
Powers’ research has been recognized by awards from the Journal of Risk and Insurance,[8] the Risk and Insurance Management Society, and the International Insurance Society. A frequent collaborator with Yale University’s Martin Shubik, he is responsible for promoting the application of game-theoretic modeling in insurance and actuarial science.[9]
_http://en.wikipedia.org/wiki/Michael_R._Power
So insurance companies take advantage every thing to make some (?) buck and they using the game-theory and lying and cheating as much they can then who's gonna be pay for it?
Us.
I'm not an economist or financial analyst, not even close!
I could be wrong, of course. Just a thought.
