You may be wondering why I am writing about something relating to HR practices in a finance blog. Well, I just learnt yesterday that a 300 people odd unit in AIG caused the collapse of the entire firm. These 300 odd cowboys wrote close to $ 2.7 Trillion of credit default swaps on an equity base of just $100 billion. When things soured, the capital based vanished in a trace and now even a $167 billion infusion of federal funding does not inspire much confidence in the firm. No one knows how much more money this can suck from the system but the belief is that the consequences of letting this firm collapse are far greater.
A key lesson from all this is the way human behaviour works and for this it is important to understand the audit and incentive procedures adopted by the company. AIG has had a history of corporate governance misdeeds and such incidences can no longer be taken lightly. Such misdeeds often prove fatal especially when markets turn for the worse.
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