Sometimes you can be so smart you’re actually stupid - post crash reviews have shown that the fancy risk modeling software simply didn’t account for a price collapse that we witnessed. I saw it coming and depite my misgivings stayed in the market - well diversified and I’m still down close to 50%. Stupid doesn’t necessarily mean criminal.
Renaming insurance with a non-insurance name and selling it without adequate reserves—without even calculating adequate reserves—is or should be insurance fraud.
There is a concept in law call “common commercial practice”. Example if a government contract specifies paint the battery in accordance to common commercial practices, the vendor in the battery business knows what this means. Try using paint not commonly used in commercial practice, the contract can be void. Question for AIG when they embarked on all this high risk scheme with other people’s money and package it as a normal investment, is it within the definition of “common commercial practice”. Example if I start a mutual fund that is rated low risk, and common commercial practice is no more than 1 percent of the assets are leveraged, and on Sep 2008 the fund collapses because I decided to leverage up to 10 percent of the fund assets in order to be competitive with other funds, am I incompetent or fraudulant???