AIG: Unintended Consequences

A giant insurance company decides to go into a new form of "insurance" that requires no reserves of capital, gets burned, then contracts with several hundred employees to pay them retention bonuses if they will stick around to clean up the mess.

Who could have guessed that this chain of events would boost the local economy in and around Fairfield County, Connecticut? More demand for bodyguards…security services…alarm systems!

Yet that is the likely result, judging from this New York Times story. Death threats and vicious condemnation by locals are being rained upon the hapless AIG threesome we previously mentioned, as well as others. If the names of recipients of bonus bounty at Merrill Lynch are publicized, the Times notes, they too may need to up their security spending.

A financial headline this morning indicated that a certain firm was revamping its platforms, hoping to resume full production of financial products, this time in a more "transparent" manner. If the populist backlash against derivatives and those who loved them continues, is it really going to be that simple?