By Peter Ludgin, executive director, Agents for Change - 09/30/08 04:31 PM EDT
On behalf of the 6,000 members of Agents for Change, I read with interest the letter to the editor on Sept. 26, “AIG failure doesn’t justify federal charter for insurers,” from Robert Rusbuldt, president and CEO of Independent Insurance Agents & Brokers of America.
Mr. Rusbuldt is incorrect in implying that proponents of an optional federal charter (OFC) are proposing the “wholesale revamping” of insurance regulation. Proponents are advocating for a modernized regulatory structure that leaves the state regulatory system entirely intact. This is about better regulation, not less regulation. The word “optional” seems to escape him.
AIG’s failure is just one reason to enact an OFC. The overwhelming impetus to modernize insurance regulation is quite simple: insurance consumers.
I found it interesting that Mr. Rusbuldt did not mention the very people he is paid to represent — agents and brokers. Producers, and the consumers they serve, are an important part of this proposal.
Consumers of insurance are the ultimate losers as insurance agents and brokers continue to labor away under antiquated 19th-century state insurance laws. Why should consumers be forced to find a new financial adviser if they move out of state? Why should a consumer in one state not have access to a product that his coworker in a bordering state can purchase? And why should states dictate the price of property and casualty products?
Mr. Rusbuldt rightly noted that AIG’s problems were related to “its involvement in and pervasive use of credit default swaps (CDS).” On Sept. 21, New York state officials announced that some CDS qualify as insurance. They went on to state that these financial instruments, beginning Jan. 1, will fall under state regulation. In 2000 the state ruled that all CDS were not insurance.
Why did it take the implosion of AIG to reverse this policy?
With their limited resources, we should not expect the states to regulate multi-billion-dollar global corporations. Mr. Rusbuldt’s dismissal of the CDS issue is shortsighted, particularly in light of New York’s increased regulatory role.
Opponents of an OFC see the writing on the wall. This is going to be a marathon and not a sprint, but an OFC will be enacted into law over the next several years because it will increase choice and competition, enhance free markets, and ultimately be good for anybody who buys or sells an insurance product. And mark my words: Today’s opponents of an OFC will be tomorrow’s proponents.
Here’s a fix
From Gregg Miller
The federal government goes to each individual homeowner with a defaulting mortgage, pays off the mortgage and then gives the homeowner the house. This saves all the homeowners, stabilizes the housing market, allows institutions with defaulting mortgages to remain solvent, stops the credit crisis, prevents dislocation of American families and avoids a Wall Street bailout.
From Nydra Carlen
We had a technology bubble similar to the housing bubble. Should we have given Treasury Secretary Henry Paulson (or Bill Gates) the unchecked power to put American taxpayers on the hook and keep the tech stocks from tumbling? Should we have pretended that the tech stocks’ values had not fallen?
The price of houses dropped. There will be pain either way because the market will settle on a price eventually. If the taxpayers bail out the bankers’ bad bets, it will be the taxpayers who are saddled with the bad debt and those living in mansions and riding in limos will be given time to save their fortunes. I’m so glad the bill was not passed, given the pressure from insiders.
Former Federal Reserve Chairman Alan Greenspan’s interest rates skewed the markets and contributed to the bubble.
Some people got greedy, and others made bad decisions. In addition, banks were sued for “redlining” — refusing loans in areas of town where the value of properties was questionable. If those loans went bad, the banks knew they could not get another buyer at that price. But the loans were required by the Community Reinvestment Act (CRA). To comply, the banks purchased bundled CRA-compliant loans.
Thanks to Congress for not dumping losses on the taxpayers and adding even more D.C. control of our markets.