Thursday, September 18, 2008

Clear talk about AIG

You probably need to be living under a rock not to have heard about the U.S. government's nationalization of insurance giant AIG. Like me you may be frustrated by the lack of intelligent and accessible discussion of the mess in the media free of the empty buzzwords of the usual Wall Street talking heads (not to mention politicians, and government officials).

To the rescue comes Knowledge@Wharton in this interview with insurance professors Olivia Mitchell and Kent Smetters. It is an intelligent and accessible discussion of the mess. I highly recommend you give it the 30 minutes investment it takes to listen. Economics professors: this is something you may want to share with your students.

Smetters mentions "the Samaritan's dilemma" which in this case refers to the adverse effects that the expectation of a bailout has on a company's incentive to take mitigative action to avoid or minimize the chances of a financial catastrophe.


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