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AIG and the Free Lunch Myth

What you describe AIG as doing isn't a Ponzi scheme. The classic Ponzi / pyramid scheme has payouts to earlier joiners coming from later joiners. e.g. Social Security, Medicare

What you describe above is fraud, taking money from customers without providing the value you promised for it. Obviously, AIG had no intention of honoring these contracts if they didn't make provision for them. They were selling empty promises based on the value of their name.