The reason is that the consequences of failure are dire and all parties typically have skin in the game.Risk lies between the chair and the keyboard - In the era of man-made risk, internal and external threats emerge from human behavior. At the same time they have a unique duty to invest in slowing down the decline of the global business commons on which they depend. The implications of the first telling are largely legal. Coffman finds that the degree and frequency of punishment of the first mover significantly decreases when an intermediary is used. After the sale, Ovation raised the price of the drug tenfold on cancer patients Berenson My initial reading of the unfolding crisis in suggests that federal assistance to AIG was indeed essential to preserve financial system security, as argued at the time by Fed and Treasury officials. Leaders who practice what they preach, have conviction and lead by example are better at managing risks than those that merely pay lip service to risk, compliance and codes of conduct. It was only after Congressional insistence that the names and amounts were finally released, approximately four months after the payments were made.
If, however, we tell the AIG bailout story as an example of miscalculated risk management, then our attention shifts to the sources of these miscalculations, such as existential fear of a total credit market collapse, and the ways in which we can better cope with such fears and uncertainties when trying to de-risk and restructure an entire industry.
For these critics, the AIG bailout story is just about as pure an example as there is of how cronyism and lack of transparency have corrupted American capitalism. A plausible counter-argument is that claims of blatant cronyism in the AIG transaction are overblown and, indeed, inaccurate.
A simple example is the consistent finding that subjects seek to sell an item at a price higher than the price they would be willing to pay to buy the same item. And we write more rules and regulations, offer stiffer punishments for violations, and beg for more ethical leadership.
Sunlight is a great disinfectant - In the age of rampant cyber risk and unwanted disclosure, privacy is a luxury.
Preference reversals of this type are of concern because they indicate that eliciting ethical judgments may be sensitive to the mode joint versus separate in which equivalent moral issues are evaluated by decision makers. But rather than a classic case of cronyism, collusion, and corruption, I see the AIG bailout as a case of impromptu and highly improvised risk management under conditions of extreme anxiety over possible outcomes.
Joint evaluation makes the intent of indirect agency transparent. Strangely enough, not all the facts of this highly technical transaction are clear or understood five years later.
The notion of skin in the game helps create both a sense of loss aversion and preservation that is critical to firm survival.