AIG's Arrogance Hurt Its Shareholders

AIG (AIG - commentary - Cramer's Take) let me have it after I said last year that I couldn't value the stock. They told me that there was a 92-page disclosure document and they wanted to know if I even looked at it. I shot back that not only did I look at it, but I had people comb it, including the forensic accountant I have on staff.

The issue was always that despite the disclosure that they had CDO exposure, we couldn't figure out what the real exposure was and we questioned whether THEY could.

Cramer: AIG Got Cocky, Got Caught

Nothing gets a management more angry than being told that they don't know what they are doing, but I was marveling at the certainty that they expressed. I told them they had tons of disclosure, but their estimation of possible losses seemed chimerical. I couldn't figure out how THEY could value the stuff when no one else could with any certainty until it was off their books or written down.

OF course, insurance companies aren't held to the same standards of mark-to-market that banks are. They used mark-to-model, and the model, we learned today -- the Binomial Expansion Technique -- was totally wrong and dramatically understated the losses. All of this cuts to the incredible level of arrogance and stupidity on the Street, making judgments that were anti-empirical on data that could not be modeled but had to be experienced and examined nationally. In short, they were scientific and certain about something that couldn't be quantified by science and certainly couldn't be certain about.

All in an 8-K, all known for a month. Shameful. Should have figured it when they didn't report when they usually do. What a ridiculous bunch of unrealistic quants. I feel terrible for their shareholders.

Of course, now we need to know who else used this standard. If they did, the stock has to be taken down similarly.

Incredible. Pride goeth. And will The New York Times redo its incredible puff piece on AIG?

I don't think so.

At the time of publication, Cramer had no positions in the stocks mentioned.

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