Topical thread: Regulators could have prevented AIG collapse?

Rdan here…Our loyal opposition Reader Sammy sends along this in your face question:

Regulators could have prevented AIG collapse. Really?

Say what you want about AIG, and it is pretty much open season on them, but just prior to their collapse, AIG was:

1) The largest insurance company in the US, in the business of assessing risk.
2) One of less than 10 companies rated AAA
3) A member of the Dow 30 Industrial Average.

So you think some Insurance Examiner could have foreseen the risk that eluded all the rating agencies, and all the counterparties (including Goldman) and prevented it? As Seth and Amy would say on Saturday Night Live: “Really?”

Even though SEC regulators allowed Bernie Madoff’s ponzi scheme to continue for 20 years, even after they were tipped off?

Not even to mention that what brought AIG down was not underwriting risk, but collatoral posting covenants buried deep in the documents.

I can imagine the conversation:

Brilliant Civil Service Examiner (circa 2003): “Mr. Greenburg it looks like you have a dangerous amount of exposure in CDS, if housing prices decline, or you get downgraded, you will have to post immense amounts of collatoral. I’m going to recommend to my superiors that you to cease and desist”

Greenburg: “Hey Frank (Catalano), fire up the Cray and show the Examiner your simulations. I am sure he will be more than satisfied. If not he should direct further questions through the offices of Sens. Dodd and Schumer, or maybe Bush and Obama.”

Some bureaucrat could have sounded the alarm? “Really?!”

Reader Sammy asks.