Risk management is like faith in God. We resort to it readily when in trouble, but tend to look askance when the going is good.
AIG could have used professional business management methods to steer clear of trouble. This may have resulted in some pedestrian quarters, but it would have left stock holders on high ground today.
The AIG story can happen to any of us. It is a consequence of disregarding serious risks because they are improbable. Here is a link to a quantitative approach:
http://www.sciam.com/article.cfm?id=multifractals-explain-wall-street&sc=DD_20080916
An AIG-type crisis can also result from negligence. Fortunately, cash-strapped corporations are easy to pull out of trouble, provided that their assets are sound. Diligent regulation also helps.
AIG is a sound stock. The corporation is in trouble because of bad management. It is a rare opportunity for honest and capable executives to prove their skills.
Post below or write to me at drsbanerji@gmail.com if you would like to know more about why the AIG stock remains valuable, what can be done to bail it out, and how you can avoid falling in to a cesspool of excess leverage.
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