|

Animals in Translation by Temple Grandin + Interview

ByJohn Brown

I have read few books more interesting than Temple Grandin’s Animals in Translation: Using the Mysteries of Autism to Decode Animal Behavior.

In it she describes her world of autism and how it helped her a perspective into animals unlike any other expert in the field. She can literally see what we block out. It’s part of what helped her make a huge impact on the meat packing industry.

And it’s had an impact on her. When she was visiting her grandparents once in Arizona, she saw a squeeze chute in operation on a ranch. She saw the cattle calm, for the most part, in the chute. “Watching those cattle calm down,” she says, “I knew I needed a squeeze chute of my own.” So when she got back home she built a human-sized one with the help of her teacher. “I got through my teenage years thanks to my squeeze machine and my horses.”

Grandin is not a vegetarian activitst (she eats meat herself) or a brutal slayer. She has taken the middle ground between the fantatics that want to prevent the consumption of all meat, on one hand, or totally disregard the life of animals on the other. She writes, she says, “because I wish animals could have more than just a low-stress life and a quick, painless death. I wish animals could have a good life, too, with something useful to do. I think we owe them that.”

Temple has dozens and dozens of insights into animals, which she shares here. You’ll learn about rapist roosters and the problem of one-trait breeding, whether prediators find it “fun to kill a groundhog” (yes, she says, they do), whether animals have true cognition, and so many other things it’s impossible to list them here. I was fascinated on every page. If you have anything to do with animals, you’re going to LOVE this book.

Get the book. Read it. In the meantime, watch a 27 minute interview of Temple by Doug Fabrizio on Utah NOW. I caught this on TV flipping through the channels and couldn’t look away. This is a fascinating interview of a fascinating woman.

Source:Temple Grandin on Utah NOW

Share

Similar Posts

  • |

    The average American reads 17 books per year

    ByJohn Brown

    Americans and Reading

    The Pew Research Center has just published their findings on reading in America. It’s called “The Rise of E-reading“. There’s a LOT of fascinating information in the report. Here’s a taste:

    1. Americans 18 and older read on average 17 books each year. 19% say they don’t read any books at all. Only 5% say they read more than 50.
    2. Fewer Americans are reading books now than in 1978.
    3. 64% of respondents said they find the books they read from recommendations from family members, friends, or co-workers.
    4. The average reader of e-books read 24 books (the mean number) in the past 12 months; the average non-e-book consumer read an average of 15.

    Building an Audience

    I also want to recommend this week’s post by Kris Rusch on Audience. She has a number of interesting things to say about the dream of being a best seller and building an audience. The money quote comes as she refers to a post by Tracy Hickman:

    “The point here is that you do not have to feel as though you are in competition with the entire world. You don’t NEED the entire world to be a successful writer. What you need is an audience—just enough of an audience, mind you—who reads your words, is changed by them and wants to come back for more.”

    An audience. More importantly, an audience that reads and “is changed by” your words. Not an audience who loves them, not even an audience who likes them. An audience who is changed by them, and because of that experience, “wants to come back for more.”

    Simple. Important. Usually forgotten.

    She talks about lots more. Read the whole thing.

    My thoughts?

    First, there’s no need for authors or readers to worry about wading through “crap.”

    According to Pew, readers only read 15 or 24 books a year on average.  That’s not a lot of books.

    More importantly, it takes about 3 seconds to get a lead for a good book.  You hear something from a friend or family member, you look at the USA Today best sellers list, you browse a few books at a store or online, you read a blog and suddenly you’ve found a book. 

    Readers fill up their book reading slots much more quickly than they can ever empty them.  That’s why we all have years of reading in our queues.

    It doesn’t matter that there are millions of other books out there, a good majority of which might have been written by monkeys. There’s no need for authors to worry that readers will have to wade through a mountain of crap to find a good book. They don’t need to because they have leads for good books coming out their ears.

    Second, people purchase books that friends, family, and co-workers love.

    Which means that when you deliver a great experience to one person, it’s going to ripple out. It’s probably not going to be linear. It’s probably going to ripple out like viruses do into different population pockets. Or seeds do into different environments. It will run through one pocket, make a jump to one or more others, or it may not jump at all. Some pockets are big, some are small.

    The way to keep a virus going is to release it in a lot of places where it’s likely to thrive or in places that a lot of people travel through. And as Kris points out, writing is all about repeat business–making sure you have a stream of good product (something I hope to rectify with my own writing this year).

    Bottom line: the best way to build your writing business is to simply write the best book you can, and keep them coming.

    Third, the market is BIG. 

    If you read Rusch’s and Hickman’s articles, you’ll see that even the mega sellers only reach a fraction of those who read. This is reinforced by the statement made by Thomas McCormack, former CEO of St. Martin’s that you can read here. So just because 100,000 people read one book doesn’t mean 100,000 others won’t read mine.  

    Moreover, e-books and online shopping are broadening distribution. Brick and mortar stores only have so many slots for books. Every 8-12 weeks they rotate the old books out (like 12 weeks is old) and replace them with the new ones, unless, of course, your book is selling very well and gets “modeled” at the store.  The point is: when you only display a few books at a time, those books will get bigger sales numbers. This happens because there isn’t anything else to purchase.

    But you don’t have that limitation with e-books and online shopping. Nothing rotates out of the store. Sure, things rotate on and off the best seller lists. But the books are always there. With an ever growing selection, there won’t be as many mega sellers.  Publishers Weekly discusses this trend in their 2011 Facts & Figures articles, which list best-seller numbers (make sure you click through to the Trade Paperback article as well). The same thing has happened with TV station viewership with the explosion of channels, DVDs, and online streaming. Same thing happened with music.

    What this means is each author has a better chance of getting his or her books to those who will love them. We’ll still have best-sellers. But we’ll also have a lot more medium sellers as well. And that’s great for authors everywhere.

    Share

  • Basic Economics, Avatar: the Last Airbender

    ByJohn Brown

    How to not be duped by political blarney

    Karl Marx was not a scientist. Nor was Adam Smith before him. They were philosophers. Theorists. Idea men. That’s what all economists in those days were. They had little tested knowledge, and so which economic system was best was all a matter of opinion.

    But things are now much different. Nations and local governments tried the various theories. And we’ve seen the results. We now have a whole century of data. Furthermore, economists now are scientists. They use scientific methods and deal with tested knowledge. Sure, there are still controversies, just as there are in any science, but the basic principles of economics today are NOT matters of opinion.

    For example, we know what happens when governments impose price controls in all their many varieties—rent caps, minimum wages, laws against price gouging, and medical care cost limits. These last few years we’ve seen a dramatic demonstration of what happens when they meddle with the prices of home loans. We know what happens when they impose tariffs or give subsidies to special groups like farmers or steel producers. We know what happens when they create barriers to people entering a market to compete, like they’ve done with immigrants. We know what taxes do.

    The unfortunate thing is that many of these principles seem to be ignored by our politicians. And by those who vote them in. And so we can have a Congress pass massive health care legislation that will cause health care shortages just as similar laws caused shortages in other countries. This is how we have a president who in a recent speech to the U.S. Chamber of Commerce suggested, in good Marxist fashion, that it was business owners who kept the American workers down by hoarding all the profits. Has he not looked at the data which shows that huge profits invite more competition, which tries to get ahead of the leader by cutting prices, which allows the American workers to get more for less, thus raising their standard of living?

    In the 1980’s and 1990’s India and China began to make fundamental changes to their economic policies, doing the things that have been proven to work. Suddenly, the economies of those nations started to grow. It’s estimated that 20 million people in India rose out of poverty in a decade. In China, more than a million people rose out of poverty EACH MONTH.

    But this seems lost on a number of politicians. Don’t let it be lost on you. We have critical elections coming up. One of the best things we can do is educate ourselves about these basic economic principles so we can cut through all the political blarney. I haven’t found a better, more enjoyable book on the subject than Basic Economic Principles: A Common Sense Guide to the Economy by Thomas Sowell. Sowell is an economist and Senior Fellow on Public Policy at the Hoover Institution at Stanford University. His book is written for the general public and so foregoes dry charts and theoretical ho-hum for lots of real-life examples and straight-forward explanations. There are times when I wish he would have gone into more detail on a few subjects, but what he lacks in depth in a handful of areas, he makes up with breadth. Furthermore, the way he presents the topic was interesting enough to make me stay up late a number of nights well past my bedtime. 

    Great family entertainment

    Do you want some fun family entertainment that includes laughs, wonder, and moments of poignancy? Something you can watch and enjoy with the kids? Then let me recommend the animated TV series Avatar: The Last Airbender. This is NOT the movie Avatar by James Cameron with all the big blue people Nor is it the movie The Last Airbender, based on the TV series, which many fans disliked. This is the original. The one that millions love.

    Through the miracle of Netflix, I started watching it with my girls a few months ago. And we’ve all been sucked in. It’s unlike any “cartoon” I’ve seen. In fact, you can’t call it a cartoon just as you can’t call The Incredibles or Lion King cartoons. This is great story telling. Furthermore, instead of it being a bunch of unconnected episodes, this series is telling a long story. It ran for three years on Nickelodeon and includes more than sixty 22-minute episodes.

    The series follows the adventures of the main protagonist Aang and his friends, who must save the world by ending the destructive war with the Fire Nation. Aang’s world is divided up into four nations—Air, Earth, Water, and Fire. In each nation are “benders” who can powers with the element of that nation. So Air Benders can fly and create huge winds; Fire Benders can generate and throw fire; Water Benders can create ice and waves.

    So it’s fantasy, and all of that is cool, but it’s the characters that we enjoy the most. We quote and laugh at some of their lines. And then there are the episodes with true dramatic moments.

    Avatar has been nominated for and won many awards, including the Annual Annie Awards, the Genesis Awards, the primetime Emmy awards and a Peabody Award. It’s excellent entertainment.

    Share

  • Teacher power, crawdad fun, and lemon bars

    ByJohn Brown

    Teacher Power

    When we find great teachers, we prize them not only because what we learn improves our lives but also because good learning can be one of the most exhilarating things we experience. Unfortunately, a lot of teaching stinks. It’s boring, misguided, useless.

    I’ve made a study of teaching. I’ve had to. For almost 20 years I’ve taught and designed courses in the private sector. And for many of those years, my work has been in a revenue-generating department. That means that my classes had better be effective and interesting, otherwise nobody signs up, revenue falls, and a lot of folks will stand around and wonder if it might not be better to just replace me with a potted plant.

    I kind of like having a job. And so I’ve tried my best to find the most effective methods for instruction. In the last few decades, education researchers have put many teaching techniques and principles to the test. We know better now than ever before how to structure learning that is effective and interesting. And I have yet to find a better explanation of the proven techniques and principles than Ruth Colvin Clark’s Building Expertise: Cognitive Methods for Training and Performance Improvement, 3rd Edition. 

    Don’t let the “training” part fool you. We often associate “training” with learning procedures and simple tasks, e.g. the State pays for “sex education” in our schools, not “sex training.” But Clark isn’t using the term that way. Clark’s “training” includes all types of learning.

    Two things separate Clark from so many others who would offer advice on teaching. First, she bases everything on tested principles and techniques. I’m not talking about tested as in some teacher somewhere tried it and was impressed. I’m talking about scientifically valid testing that controls for variables and shows causation. The methods she describes are practical and proven. Second, she writes clearly enough and uses enough examples so that I can read about the principle and immediately see how I can apply it in my own class.

    Among other things, you’ll learn:

    • Why working memory is key to instruction and how to overcome its limits
    • How to motivate learners
    • How to structure learning
    • When to use lecture and when to put learners into action
    • When taking notes can actually be counterproductive

    You’ll even learn why assigning lots of practice is NOT always the best way to learn. In fact, sometimes your child will learn more if you do half of their homework questions for them. Sound ridiculous? It’s not. It’s science.

    You’ll find that there is no yellow brick road in teaching. Instead, you’ll see that the effectiveness of any method depends on whether it’s suited to the specific situation. And Clark will explain what the key factors in any situation are so you know which methods to apply and the trade-offs you’ll make when you do.

    If you’re a teacher in any setting–family, job, church, school, or recreation–or if you’re trying to teach yourself, this book (specifically the 3rd edition) will be a goldmine. I can’t recommend it highly enough.

    Crawdads & the Bear River Greenway in Evanston

    Here’s a recipe for a whole lot of family or date fun. And it costs almost nothing. Drive to Evanston, Wyoming. Make sure you bring a bucket. Pick up a few pieces of fried chicken at Wal-Mart then picnic at the Bear River Pavilion park. It’s the one with the small lake west of Wal-Mart and east of the overpass on 89. Keep your chicken bones.

    When you finish eating, attach a length of about four feet of string or yarn to each chicken bone. Weight the bone down with some rocks or washers. You want it to sink deep. Tie a loop for your finger in the end of the string. Then go out to the pier or the cement box on the northwest side of the small lake and drop your bone in.

    Wait.

    Slowing bring your chicken bone up. You’ll find a crawdad clinging to it, thinking he’s gone to free lunch heaven. Use a net to snag the crawdad. A simple fish aquarium net will do. You can get them at Wal-Mart for a few bucks. Plop crawdad into the bucket. Ooh and aah appropriately. Make sure he’s got some water to swim around in.

    Drop your line in again and repeat until you and the kids or dates are bored. We had a bucketful in about twenty minutes. You might want to pick a few of the crustaceans up. Just grab them on the sides just behind the spot where the arms of their big pincers join the body. Wave the crawdad at a selected victim—wife, daughter, girlfriend–for special effects.

    When you’re done, dump the critters back into the water. But don’t go home yet. Take a stroll along the greenway that follows the river and enjoy the beautiful sights. If you walk east from the park, you might be able to be at the right spot at the right time to see a train up close as it thunders by.

    We just did this with family from Colorado and California and had a great time. Who would have thought Evanston had this gem?

    Crocker’s Luscious Lemon Bars

    I luv lemon in desserts. I especially love lemon pies, but they take too long to make. Plus you’ve got the meringue to whip up, and half the people hate that stuff anyway. I’ve found lemon bars taste just as good, probably better, and are far easier. Here’s a recipe I just tried and loved. It’s from our Betty Crocker cookbook. Please remember to include the sugar. My sister, bless her heart, attempted it without, and she can verify that, surprise surprise, it just doesn’t taste quite as good.

    STEP 1: Preheat oven to 350 degrees.

    STEP 2: Make pastry crust.

    1.   Combine: 2 C flour, ½ C powdered sugar, 2 T cornstarch, and ¼ t salt

    2.   Use pastry blender and cut in ¾ C butter until it mixture resembles coarse crumbs

    3.   Press mixture into bottom of greased 13x9x2 inch pan

    4.   Bake for 18-20 minutes or until edges are golden

    STEP 3: While crust is cooking, make filling by stirring together: 4 slightly beaten eggs, 1.5 C granulated sugar, 3 T flour, 1 t lemon peel (optional),  ¾ C lemon juice, ¼ C half-and-half (you can substitute with light cream or milk if needed)

    STEP 4: When crust finishes, pour filling over hot crust.

    STEP 5: Put it all back into oven and bake for 15-20 minutes or until center is set, i.e. it doesn’t jiggle and slosh.

    STEP 6: Cool on a wire rack for 20 minutes.

    STEP 7: Cut into bars, but DO NOT EAT IT YET! The lemon bars will taste 500% better if you totally chill them in fridge (the chill is the secret, folks). So put that pan in the fridge and wait! It will take a few hours.

    STEP 8: When TOTALLY chilled, take out of fridge, sift some powdered sugar over the top, and serve.

    Try to refrain from eating half of the pan.

    Share

  • The Husband by Dean Koontz

    ByJohn Brown

    TheHusband_DeanKoontzYou’re name is Mitch Rafferty. You’re a gardener. You have no past as a cop, spy, or Navy SEAL–you’re just a plain old petunias and begonias guy. You’re working in someone’s yard when you get a call on your cell phone. You answer. And the guy on the other end has your wife.

    He tells you that you will get him two million dollars or you’ll never see her again.

    You’re lost. This has to be a sick prank. You’re just a gardener. You know peat moss and mulch. You don’t have two million. Heck, you have, at the most, $11,000 in the bank. You tell him this. He tells you he knows.

    Then your wife screams over the phone. The wife who you love, who makes  you whole. They let her talk. It’s not just one man. And then, just to show you that they’re serious, they kill a complete stranger who is walking a dog across the road. They shoot him in the head. You know they’re watching you. You look around and can’t see where the sniper is hiding.

    You’re a gardener. They have your wife. If you go to the cops, they kill her. If you don’t deliver, they kill her. What do you do?

    That’s the premise of Dean Koontz’s The Husband. I listened to this on audio book, read by Holter Graham, and, folks, I don’t think a book has gripped me like this in a very long time. And that despite some quirks in the reader’s presentation. I’m coming to respect Koontz as a writer more and more. I can’t recommend this book highly enough. Go get it. Read it. Do it before they make the movie.

    Share

  • Where the Wild Things Were by William Stolzenburg

    ByJohn Brown

    I live among ranchers in northern Utah, people whose livelihood walks around on four legs. People who can lose thousands of dollars of future income if they lose one good cow or calf. People who think one of the dumbest things to happen in recent times in the West is the reintroduction of wolves to Yellowstone. Now, I don’t agree with them, but I do think they have good cause.

    Contrary to what people will tell you, wolves do not kill just for food. Wolves kill because they like killing. If you don’t believe me, then believe Temple Grandin, an expert on animals, who asks the question in her Animals in Translation: “Is it fun to kill a groundhog?” 

    She reviews a number of studies done on animals and answers with an unequivocal yes, predators love to kill. In fact:

    “Animals like having their predatory killing circuits turned on, and will turn them on themselves if you show them how. When you think about what predatory killing is all about, of course it ought to feel good, because predatory killing means dinner. Killing a mouse feels good to a cat the same way finding a luscious ripe banana feels good to a primate.” (p138)

    What this means is that when wolves come to kill sheep, they don’t just kill one old and decrepit ewe. No, they do what they did on a neighbor’s land a few miles from my home. They maim and kill five or six. Not because two wolves were that hungry, but because it was fun and they could.

    Sheep are like popcorn to wolves. Compare them to elk or other wild animals. The reason why wolves tend to indeed eliminate the young, weak, and old in the wild is that those poor specimens tend to run a bit slower than their brethren. In the wild, slow means dead. For the wolf, it’s hard work to run down an elk or buffalo. And if you’re a hungry son-of-a-gun, you’re not going to go chasing after another dinner while there’s fresh meat in front of you because the rest of the pack will eat it before you get back. And you ain’t going to catch one on your own anyway. But sheep aren’t elk. Cattle aren’t elk. They’re bred for meat, not sprinting. Sheep are easy meat. And the wolves can’t help themselves.

    But even if the wolves exercise restraint and eat just one, that’s cash. That’s clothes for the kids. That’s a mortgage. That’s heat. And it’s a danger for children as well (adults I don’t worry about: who cares about a few devoured adults?). My girls like to hike. And while I’m sure wolves will usually stay away, a sick or starving wolf will risk humans just as sick and starving mountain lions do. You get a different mindset about predators when you live up where I do. When they’re not something you see caged up in the zoo or on PBS.

    For all these reasons and others, I couldn’t wait to read Where The Wild Things Were by William Stolzenburg. Folks, the book is fabulous–well-written and interesting from page one to the very end. The key point is that predators play a huge role in maintaining a healthy diversity of both plant and animal life in any given ecosystem. Stolzenburg begins with starfish and moves through otters, killer whales, jaguars, mountain lions, and wolves. Along the way he reveals just how important killing is.

    Yes, killing is critical to life as we know it.

    Because without it, the most dominant herbivores will end up eating all the food. And this will end up killing off most of the other herbivores. It will kill off the great variety of flora in any given system. It can turn a paradise into a hell as Stolzenburg illustrates with the islands of Lago Guri in Venezuela. 

    Of course, some people think the answer is to bring back all the big predators. The rewilding supporters want to populate the West not only with wolves, but also lions (African), jaguars, cheetahs. Heck, they salivate at the idea of giant Pleistocene bears that can run faster than a horse (yeah, I want one of those up where the Boy Scouts camp).  I think it’s good the wolves are back in Yellowstone. But I don’t want packs of wolves eating my friend’s herds and daughters (of course, maybe a few Boy Scouts are okay). Still, I believe there has to be another alternative. What that is I don’t know. But we all need to think about it. We do. And great way to start is by reading Stolzenburg’s book.

    Share

  • AIG bailout, risk, and writing

    ByJohn Brown

    With the current financial “crisis” I kept wondering what went wrong. Read this article on the AIG mess from the guys at the Motley Fool. That explaination of the AIG mess is very interesting. The other part of this current financial mess, the loaning-of-money-to-people-who-were-idiotic-credit-risks and the making-me-foot-the-bill-for-someone-else’s-assumption-of-ridiculous-risk, those two parts torque me.

    So why am I posting this in the Zing and Writers categories?

    Because it IS zing to me. You could write a high-finance thriller about this. You could write about a character who leveraged himself silly and is about to lose it all–in a smaller sense. You could write, hey, wait a minute. I just read a book about something similar–THE CHAIRMAN by Stephen Frey. It’s a 2.5/5 star book. Good enough that I had to finish it. Although not good enough to make my recommendation list. 

    The point is that stories are about problems and conflicts. And this understanding of the insurance industry provides some fertile ideas for both problems and conflicts.

    And since I can’t get the blasted link to work, here’s the full deal.

    AIG’s Failure Is So Much Bigger Than Enron
    By Andrew Sullivan, CFA
    September 17, 2008 Comment (54) Recommend (124)
    Enron — reviled, fraudulent Enron — destroyed more than $60 billion of shareholder value.

    AIG (NYSE: AIG), which the government just took over, has destroyed $180 billion already — and it almost brought down our entire financial system.

    We don’t know money
    Which is ironic, given AIG’s old television commercials, in which the giant letters “A I G” displayed on the screen while text flashed underneath that culminated in the following phrase — all in capital letters:

    WE KNOW MONEY

    There were no smiling couples, young children at play, or lounging retirees. No, AIG was above that — it was better than that.

    But here’s a news flash, AIG: You don’t know money.

    If you did, you’d have realized a few things. Insurance is terribly simple, as long as you follow the Three Rules:

    Price your risk correctly.
    Invest conservatively so you can pay out claims when they come due.
    Don’t do anything else.
    Sit back and collect the spread. That’s it, folks.

    Seriously, that is it. Ask Warren Buffett, and he’ll probably tell you that if you follow those three rules, you’ll be fine. You won’t be the biggest or fastest grower, but you’ll be absolutely fine.

    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:

    Diversifying into fast-money proprietary trading.
    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).

    This strategy worked beautifully — for a while. AIG created a separate business segment called Financial Services to trade in the aforementioned assets. This business had $204 billion in assets at year-end 2007, up from $60 billion in 1998.

    Operating income surged from $900 million in 1998 to $4.4 billion in 2005. Some of the moves it made were brilliant, such as the purchase of ILFC, an aircraft-leasing business. But the other trading businesses were the Medusa that turned the whole company to stone.

    Let me make one thing clear: Proprietary trading isn’t bad, in and of itself. Warren Buffett engages in it. But just like atomic weapons in the wrong hands, proprietary trading can do a lot of damage. The problem is when you start to get aggressive and don’t heed proper risk — when you start to speculate instead of invest.

    And there’s one other critical ingredient for disaster.

    The “L” word
    As in “leverage,” the sharp knife in corporate seppuku dramas. Leverage is, by my estimation, the No. 1 reason why companies fail.

    And compared with its peers, AIG had one of the sharpest knives around. Here’s how its leverage (assets to equity) stacked up against other insurance operations as of December 2007:

    AIG: 11 to 1.
    Markel (NYSE: MKL): 4 to 1.
    Berkshire Hathaway (NYSE: BRK-B): 2 to 1.
    Montpelier Re (NYSE: MRH): 2 to 1.
    Travelers (NYSE: TRV): 4 to 1.
    White Mountains Insurance (NYSE: WTM): 4 to 1.
    Chubb (NYSE: CB): 4 to 1.
    I would love it if someone gave me a rational, believable explanation of why leveraging your equity 11-to-1 is a good thing for an insurer. The sole job of an insurance CEO is to ensure that his or her company stays in business; the CEO’s job has nothing — absolutely nothing — to do with growing profits every year in a steady, smooth line.

    Surprises in insurance are almost always negative, so simply staying solvent is the overriding priority. A company can do just that by following the Three Rules.

    Two years ago, a few of my Fool colleagues had an interesting conversation with Chris Harris, the chief investment officer at reinsurer Montpelier Re. Harris noted that Montpelier invested its float primarily in U.S. Treasuries, Fannie and Freddie bonds (back when they were considered safe), and the like.

    When asked why he didn’t invest more aggressively, Harris said the company believed that it got all the risk it could handle on the other side of the fence, insuring against megacatastrophes.

    Even if you disagree, as an investor you have to recognize the judiciousness in this way of managing one’s business. An insurer that has to pay big claims from hurricanes Ike and Gustav and Typhoon Sinlaku — and additionally worry about the rapid decline in its investment portfolio as a result of the higher level of risks it has taken on — has a big problem.

    That insurer, folks, is AIG. And that big problem is now yours and mine.

    This really is bigger than Enron
    The edifice Hank Greenberg built has all come crashing down. Apparently, AIG didn’t realize that almost 40 years of 15% growth multiplied by a big fat zero equals just that: zero. It didn’t consider that its leverage left it exposed to a liquidity crisis, and it didn’t consider that its non-insurance businesses could bring down the whole company.

    In all fairness, management did not realize how much exposure it had to CDOs backed by subprime loans. This may or may not be true, but Buffett has famously stated that each one of these prospectuses has something like 15,000 pages, so it’s unlikely they were gone through in any great detail.

    But investing in things you don’t know is a huge risk, right? And that risk was compounded by having so much leverage. The fact is, the more leverage you have, the more careful you must be with the investments you hold, because your own capital structure is that much riskier.

    AIG did nothing of the sort. And so even though it has a rock-solid, wonderful insurance franchise, its greed and lack of care in its investing decisions took down one of the world’s great companies.

    What a shame. What a shame for all of the investors who lost billions thinking that this company was conservative. What a shame for taxpayers like you and me. What a shame for the United States’ reputation as a beacon of financial stability and conservatism.

    For Fool.com’s continuing coverage of this week’s events, check out “The Biggest Financial Story of the Past 50 Years.”

    Andrew Sullivan has no financial interest in any of the companies mentioned. Montpelier Re is a Motley Fool Hidden Gems selection. Markel and Berkshire Hathaway are Motley Fool Inside Value recommendations. Montpelier Re and Berkshire Hathaway are Motley Fool Stock Advisor picks. The Motley Fool owns shares of Berkshire Hathaway and has a disclosure policy.

    Share