In the bleak days of nineteen-eighty-three, as England languished in the doldrums of a ruinous monetarist policy, the good and loyal men of the Permanent Assurance Company– a once-proud family firm, recently fallen in hard times– strained under the yoke of their oppressive new corporate management.
Pushed beyond the bounds of decent and reasonable victimization, the aged retainers take their destiny in their own hands and– Mutiny!
We’re sailing on the wide accountancy!
Insurance is terribly simple, as long as you follow the Three Rules:
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1. Price your risk correctly.
2. Invest conservatively so you can pay out claims when they come due.
3. Don’t do anything else.
Sit back and collect the spread. That’s it, folks.
And so, heartened by their initial success?
The desperate and reasonably violent men of the Permanent Assurance battled on, until?
as the sun set slowly in the west the outstanding returns on their bold business venture became apparent. Once-proud financial giants lay in ruins, their assets stripped, their policies in tatters.And so, they sailed off into the ledgers of history one by one, the financial capitals of the world, crumbling under the might of their business acumen. Or so it would have been, if certain modern theories concerning the [economical] shape of the world had not proved to be disastrously wrong.
The problems come when you get greedy and aren’t satisfied with the spread. And your greed can lead to certain actions that aren’t stated anywhere in the rules, including:
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1. Diversifying into fast-money proprietary trading.
2. Leveraging your company 11-to-1.
Neither of these is a goal of a well-run insurance company, yet AIG embraced both with open arms.
Diworsifying
But AIG self-destructed not because it screwed up in its insurance business. It didn’t fall into the trap of mispricing risk, as so many other insurers over the years have done. It also invested premiums fairly conservatively. So it followed Rules 1 and 2.
Where it slipped up was in Rule 3. See, the folks at AIG thought they were so smart at insurance that they could start other capital-markets businesses … including proprietary asset management in things such as commodities, currencies, energy, interest rates, and the selling of default swaps on collateralized debt obligations (CDOs).
Source: The Motley Fool (not The Monty Fool)
The Crimson Permanent Assurance is a short film that plays at the start of the feature-length motion picture Monty Python’s The Meaning of Life. Although presented as a separate film, and sometimes shown independently, it could also be regarded as a prologue to the longer film, which is almost never shown without The Crimson Permanent Assurance preceding it.
Having originally conceived the story as a 6 minute animated sequence in Monty Python’s The Meaning of Life, intended for placement at the end of Part V, Terry Gilliam convinced the other members of Monty Python to allow him to produce and direct it as a live-action piece instead.
