The research, which took five months, was the work of a team led by Tim Freestone, who is speaking here for the first time. Most analysts are upbeat: their colleagues’ bonuses depend on fees from the company under scrutiny. But Freestone’s firm (now called Crisis Economics) is independent. He judged that AIG was highly overvalued, and he would later realise that its shares were supported by an ability to stifle criticism. In his report for The Economist, however, he was tactful. To justify the share price, he said, “it would have to grow about 63% faster than [its] peers for the next 25 years. If investors believe that AIG can sustain this type of performance for that period of time, then AIG is properly valued”. Any investor who believed that would need to be certified.The implication is that AIG was seriously over-valued, perhaps even a zombie insurance company. In that context, the excessive risk-taking of the Financial Products Group at AIG, selling vast quantities of credit default swaps might have been an attempt to double up bets.
The conventional explanation for AIG's collapse is that it did not reckon on a perfect storm caused by the collapse of the housing bubble. But this article suggests that perhaps officials knew the risks but were motivated by the need to find profits to support the valuation of the company.