FINDING OUT YOU CAN SPEND MORE MONEY ON PARTIES AND PORSCHES.

FINDING OUT YOU CAN SPEND MORE MONEY ON PARTIES AND PORSCHES. Up until recently, there were a lot of respected opinions that financial institutions should be taking more risks and should be reducing their reserves. An interview in March 2007 in the Financial Times with the Chief Financial Officer of AIG began: “Imagine if an American family with the average net worth of $500,000 had a close look at its finances and discovered it had $100,000 to spare;…. $100,000 it could spend on parties, paintings or a Porsche 911.” The article argued that AIG— which had to be bailed out by the United States government 18 months later– had made a similar discovery: “That, in corporate terms, is what has just happened to AIG. Earlier this month, the world’s biggest insurance company revealed that, on its conservative estimates, it had excess capital of between $15bn and $20bn.” I suppose (in hindsight) that the analogy could now be used to support an argument that if you find you have more money to spend than you thought you had, you should take a second look at risks before spending it.