The time is ripe to look at global
solvency standards along the lines of the EU’s Solvency
II plan, which requires insurers to account for all their
Back in the 1990s I jumped on the technology bandwagon like
a lot of people. A friend told me about an exciting new
technology upstart that would use the Internet to revolutionize
the way we learn. She had a good friend who knew the people
starting the business. This was a good way to get in on the
ground floor. (Sound familiar?) Icons of the tech industry were
on the board of directors, and the stock was priced right at 35
cents per share. With promises of doubling, tripling,
quadrupling my investment quickly, I plunged in. Well, you can
guess the end of the story. The stock soared briefly and hit
$25 a share, then fell as quickly as it rose. Fortunately, I
invested only a modest sum.
Later I learned that the investor who had tipped his friend
off to this great deal was smart enough to sell at $25. About a
year later, I attended a party at their brand new $1.2 million
house. I went out of morbid curiosity to see where my money had
After this tough lesson, I told a friend that capitalism was
nothing more than a giant Ponzi scheme. Those who get in early
make a lot of money. Those who get in last are left holding the
bag when the bottom drops out.
John Maynard Keynes voiced this view nearly a hundred years
ago. He said, “The actual, private objective of the most
skilled investment today is…to outwit the crowd and to
pass the bad, or depreciating, half-crown to the other
I got the half-crown in the tech deal.
Fast forward to 2008. Today’s financial crisis is
worse than the tech meltdown in the 1990s and worse than the
savings and loan crisis in the 1980s. We have to go back to the
1929 financial collapse that led to the Great Depression for
It, too, was a global crisis brought on by unfettered market
economics, greed and panic. Despite what Archie and Edith
Bunker sang in the popular ’70s TV show “All in the
Family,” those were not
the days, and I don’t think anyone is longing for Herbert
We thought we had learned from the ’29 crash.
Government stepped in and put in new safeguards to prevent a
future wholesale sell-off on Wall Street. But as time passed,
lessons were forgotten and so was Keynes—replaced by the
laissez-faire attitude that prevailed over the last two
decades. As a result, government oversight was relaxed, the
financial sector was deregulated and we set ourselves up for
another tsunami of a crash when the time was right.
“It is of the nature of organized investment
markets,” Keynes said, “…that, when
disillusion falls upon an over-optimistic and over-bought
market, it should fall with sudden and even catastrophic force.
Once doubt begins, it spreads rapidly.”
Keynes didn’t believe that the market could always
right itself. He believed government had a role when markets
failed. Of course, market failure on a global scale is what the
Fed was trying to prevent when it bailed out Bear Stearns,
Freddie and Fannie and AIG—and then proposed a $700
billion rescue package to shore up our financial institutions
and prevent a worldwide collapse of the financial system.
Through the debate, economists clashed over whether the
government should intervene. Only time will tell if the right
decision was made.
The near collapse of AIG sent shockwaves through the global
insurance market. The breakup of AIG’s vast organization
will change the insurance landscape for a while to come.
Insurance regulators around the world are looking closely at
what happened to AIG and reviewing ways to prevent it from