Self fulfilling prophecy

It was almost¬†amusing to see everyone trying to cash out their policies with AIA when they heard of the first sign of trouble with AIG, the parent company. (I only found it almost amusing because I hold a policy at AIA and I was hoping that the run wouldn’t bring it down)

To those who are better educated and have a basic foundation in finance, making a run at a financial institution — in this case an insurer — at the first hint of rumours about its demise is a surefire way to ensure a downward spiral to oblivion. Most financial institutions are highly leveraged, so if people start to make a run and withdraw money, the financial institutions may have no choice but to source for loans or sell off assets to maintain a minimal level of liquidity. In short, don’t make a run unless you are extremely sure that logic — not fear — is guiding your actions. (But of course, if every father, mother, son is making a run, then you will have no choice but to make a run as well since logic no longer rules the mob)

Anyway, for a company like AIG, it is unlikely that the US Government will even allow it to fail as it will void the insurance policies of tons of Americans and result in social turmoil. They will not allow this to happen in any given year, much less a period so close to elections.

One thought on “Self fulfilling prophecy”

  1. Hahaha… My family got quite a number of policy with AIA! Anyway, everything will be positive! Cos everything just clashes with the election!
    Don’t worry, be happy! (^v^)

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