Make of this what you will:
The Treasury Department has decided to extend bailout funds to a number of struggling life-insurance companies, helping an industry that is a linchpin of the U.S. financial system, people familiar with the matter said.
The department is expected to announce the expansion of the Troubled Asset Relief Program to aid the ailing industry within the next several days, these people said.
Since I really do not understand all the ins and outs of our economy, I will describe it in ways I understand: it looks like the primary cancer has metastasized.
*** Update ***
Via the comments, this story about municipalities across the country in deep trouble because they got into the risky derivatives mess that got us all here, which featured this awesome quote:
“When these sophisticated things were created, most people didn’t think they’d ever be used by the smallest issuers, who had the least amount of resources and knowledge and experience to understand the risks,” said Thomas G. Doe, the chief executive of Municipal Market Advisors, a bond strategy company in Concord, Mass.
Shorter Thomas Doe: “No one could have predicted that people would want to use our tools to make free money.”
jon
Not at all a surprise. Insurance (whether it’s life, homeowner, flood, hurricane, liability, auto, or health) is about taking money, calculating the amount that will need to be paid out, investing the rest, and hopefully making a profit. The companies have shown a need to get bailouts after recent disasters, so I can’t imagine why they wouldn’t need bailouts after recent disastrous investments.
The primary cancer is still ridiculous investments intended to create imaginary wealth that spurs the creation of more debt that saps the have-nots. It hasn’t metastisized so much as just been discovered in more and more places.
gex
So it pretty much appears any privatized system for wealth and risk management is pretty much a scam. We can’t have a social safety net – just save/invest your money and insure yourselves. So what if the investment bankers, the pension plans, and the insurance industry are all full of shit – just taking your money and stuffing it in their pockets. It’s not like you’ll lose out. Your savings and insurance will be covered by the government – i.e. you.
I’m disgusted.
As an aside there’s another gotcha for us middle class idiots who bought into this bullshit ownership society. My girlfriend lost her job which was the majority of our income. So she’s been digging into her 401k plan to make ends meet. As we pull out *our* money to pay the bills we pay taxes and we pay a PENALTY for taking this money out early. Nice. I really like that extra tax on my past income going to pay for some rich asshole’s tax cut or bailout.
And don’t even get me started on the fact that if something happened to one of us, the life insurance pay out would be taxable because we aren’t allowed to get married – or the fact that I pay taxes on her health care benefits because we can’t get married.
Hate to sound Rush like, but we’re just bending over and letting the rich oligarchs ream us. /end rant.
Brian J
I posted this article late last night, thinking that nobody had seen it. Maybe I was wrong, but even though I was only able to check up on my usual blogs at the end of the day, I didn’t see anything about it. Assuming it doesn’t simply fail to become noticed, I imagine it as a bigger issue, since it involves possible fraud, what seems like obvious deception, and small(er) towns that aren’t as likely to have people familiar with new financial instruments and are thus likely to feel more outraged that they were taken for a ride. I don’t want to judge without hearing more about it, but suffice it to say that it seems like the people involved in bonds like that firm in Tennessee deserve a special place in Hell. Read it for yourself, but here’s a small preview:
As for the article you cited above, it seems clear that this is an unfortunate if entirely expected result of the fall in asset prices and the desire not to have what would look like a bank run on these companies. I’m not sure it makes sense to be bothered by this any more than it makes any sense to be angered by financial firms being bailed out. I’m just curious if there’s a way to avoid something like this in the future, or at least make it a lot less likely.
Michael
Another proud moment for Conservatism’s Free Marketeers. I’m sure that the executive compensation, stock options and shareholder cap gains were greatly enjoyed during the salad days early in the scheme.
So who really cares if they put their reserves at risks? The little people are losers, according to Rick Santelli, if they didn’t protect themselves more.
America’s insurers are at a dangerous crossroads – their products are failing in the eyes of the consumers. If they are expensive, hard to deal with, arrogant and unreliable, then why should their customers continue to support the present system? Insurers (and the financial institutions) are supposed to be facilitators, not the prime movers of economic activity. With so much capital impounded by them, the works are gummed up.
Break ’em up, temporarily nationalize all of them. Get the capital flowing again, and maybe, just maybe we can take another look in five years or so at allowing new ones to start.
robertdsc
Let’s skip the assistance stage and smash them to pieces via nationalization.
Otherwise, it’s just another fuckup waiting to happen.
Zifnab
@Michael:
Clearly, they should have hedged against this by buying insurance. :-p
I always saw private insurance as a giant scam. You pay in X and get out Y. Either you "win" and pay less than you get back, or you "lose" and pay in more. Since the company needs to make a profit, it’s not just a matter of taking in enough money to cover overhead. The business has a vested interest in screwing the customer out of every last dime.
You only need to look as far back as the
FEMAKatrina disaster to see home owner insurance companies rushing in to rewrite policies and lawyer up against clients so they don’t actually have to pay out against the billions of dollars in claims. Private insurance is functionally worthless over the aggregate.Kirk Spencer
I agree with a lot of what’s said above, but feel it necessary to note the risk.
Remember the "housing ATM"? That is, the way a lot of people kept up with increasing load and flat wages was multiple refinancing of the home? It’s dead, but costs are still going up. Credit cards are running out, folk have been pre-drawing (snort) their 401k accounts…
Meet another source of funds – cashed out insurance policies. In the normal run of things there’s enough money to cover. There are no protections, however, against runs on the bank, er, insurance company reserves.
Now let me take it to why I lean to saying "so what" about this – to agree with the previous posters. A (not the) big player in the insurance world is a name already familiar to us in this mess.
AIG.
I’m not sure it’s metastasized. It might be just the same very large tumor seen from another direction.
Dork
Who cares about life insurance? I mean, after you’re dead, what good is money?
Rick Taylor
If you don’t own a bank these days, you’re just missing out. Where do I get one?
Michael
It could have been an awesome new product – an insurance policy against the default on an insurance policy. You could call them Insurance Default Swaps, and charge a premium for those – but this time, in the regular consumer market.
The profits would be enormous. Imagine the gilded urinals in the executive suites, complimentary high class escort services for everybody at the CFO rank and up, the monthly upper tranche executive and director gift boxes consisting of Cuban cigars marinated in 100 year old cognac…..
Svensker
You know, I don’t understand any of this stuff, nor do I particularly want to — just like I don’t particularly care to understand the internal combustion engine when I start the car. The people who do things like banking and insurance are supposed to be fiscally conservative, responsible, sober, and dull. If a few of them get a little fractious and start capering about, there are supposed to be sober, industrious government regulators to stop the silliness before it causes too much harm. Apparently, that is all wrong. Banking and insurance are for high flyers who drive Ferraris and dance in giant crystal champagne cups and the regulators are there to provide the party hats.
The only thing I do understand is that if you’re not one of the elite, you’re going to get screwed.
NonyNony
@jon:
This needs to be re-iterated, because I’m shocked at the number of people who do not seem to know how insurance works – or how insurance companies make profits.
After working for a major insurance company in the late 90s, I can totally see why our healthcare system sucks, why the life insurance companies might need a bailout now, and why some major insurance companies are probably going to need even bigger bailouts in the near term. And it mostly boils down to one thing – shareholders demanding utterly ridiculous short-term returns on investment from the companies and putting in place executives who will give them those returns. To get those kinds of returns, executives gut the companies down to skeleton crews, their investment teams invest in risky investments, and they try to keep from paying out any kind of claim as much as possible.
It’s unsurprising that in this climate, the insurance companies would be flailing. Their investments are probably worse off than average. Plus, at least when I worked there, the "safe" place to put money was in commercial real estate – because "Real Estate always goes up in value". So even their "safe" holdings are grim.
We need a new regulatory structure for banks and insurance companies. But even more, we need a massive attitude adjustment of our investor class. The rates of return that they’ve been demanding for the last 2 decades are unsustainable, and lead to companies that are either just shells waiting to collapse, or involved in such high risk activity that one economic downturn can crumble them. We need to get back to where slow growth and a reasonable rate of return from a company is all we expect.
Michael
Yup. A symptom of acquisition and merger beyond reason.
Svensker
But that’s so….dull. How can you be a Master of the Universe with that attitude?
Kirk Spencer
@NonyNony:
Yep.
It’s the result of a simple change in which mindset dominates.
Mindset 1) your stock in ownership in the company, and your income is the result of the company doing well and sharing its profits (from dividends).
Mindset 2) your stock is a commodity, and the income is the result of buying low and selling high. The health and the performance of the company is important only in how it drives this range.
Note that mindset 2 thrives on a (relatively) instable marketplace, or at least a lot of companies that have explosive (up and down) performance.
Michael
We have a winner. The policy gyrations of the past 30 years have been about ceding an ever-increasing share of economic, political and social control to the investor class – which has led to some disastrous unitary decisionmaking and short-term strategies.
Here’s an amazingly prescient speech by Byron Dorgan in 1999, opposing the Gramm-Leach-Bliley bill.
*****************************************************
http://www.dailykos.com/storyonly/2009/4/8/717702/-VIDEO-from-1999:-Byron-Dorgan-vs.-Gramm-Leach-BlileyWOW
Mr. President, we are debating a piece of legislation in the Senate that is called the Financial Services Modernization Act of 1999.
I come today with the confession I am probably hopelessly old fashioned on this issue. For those who have a vision of re-landscaping the financial system in this country with different parts operating with each other in different ways and saying that represents modernization, then I am just hopelessly old fashioned, and there is probably nothing that can be said or done that will march me towards the future.
I want to sound a warning call today about this legislation. I think this legislation is just fundamentally terrible. I hear all these words about the industry remaking itself–banks, security firms and insurance companies, and that we’d better catch up and put a fence around where they are or at least build a pasture in the vicinity of where they are grazing. What a terrible idea.
What is it that sparks this need to modernize our financial system? And what does modernization mean? This chart shows bank mergers in 1998, in just 1 year, last year, the top 10 bank mergers. We have discovered all these corporations have fallen in love and decided to get married. Citicorp, with an insurance company–that is a big one–$698 billion in combined assets; NationsBank–BankAmerica, $570 million; and the list goes on. This is a massive concentration through mergers.
Is it good for the consumers? I don’t think so. Better service, lower prices, lower fees? I don’t think so. Bigger profits? You bet.
What about the banking industry concentration? The chart shows the number of banks with 25 percent of the domestic deposits. In 1984, 42 of the biggest banks had 25 percent of the biggest deposits. Now only six banks have the biggest deposits. That is a massive concentration.
I didn’t bring the chart out about profits, but it will show –this is an industry that says it needs to be modernized–banks have record-breaking profits, security firms have very healthy profits, and most insurance companies are doing just fine. Why is there a need to modernize them?
So we must ask the question, what about the customer? What impact on the economy will all of this so-called modernization have?
It is interesting to me that the bill brought to the floor that says,
Let’s modernize this,” is a piece of legislation that doesn’t do anything about a couple of areas which I think pose very serious problems. I want to mention a couple of these problems because I want to offer a couple of amendments on them.I begin by reading an article that appeared in the Wall Street Journal, November 16, 1998. This is a harbinger of things to come, just as something I will read that happened in 1994 is a harbinger of things to come, especially as we move in this direction of modernization.
It was Aug. 21, a sultry Friday, and nearly half the partners at Long-Term Capital Management LP [that’s LTCM, a company] were out of the office. Outside the fund’s glass-and-granite headquarters, a fountain languidly streamed over a copper osprey clawing its prey.
Inside, the associates logged on to their computers and saw something deeply disturbing: U.S. Treasurys were skyrocketing, throwing their relationship to other securities out of whack. The Dow Jones Industrial Average was swooning–by noon, down 283 points. The European bond market was in shambles. LTCM’s biggest bets were blowing up, and no one could do anything about it.
This was a private hedge funding.
By 11 a.m., the [hedge] fund had lost $150 million in a wager on the prices of two telecommunications stocks involved in a takeover. Then, a single bet tied to the U.S. bond market lost $100 million [by the same company]. Another $100 million evaporated in a similar trade in Britain. By day’s end, LTCM [this hedge fund in New York] had hemorrhaged half a billion dollars. Its equity had sunk to $3.1 billion–down a third for the year.
This company had made bets over $1 trillion.
Now, what happened? They lost their silk shirts. But of course, they were saved because a Federal Reserve Board official decided we can’t lose a hedge fund like this; it would be catastrophic to the marketplace. So on Sunday night they convened a meeting with an official of the Federal Reserve Board, and a group of banks came in as a result of that meeting and used bank funds to shore up a private hedge fund that was capitalized in the Caymen Islands for the purpose, I assume, of avoiding taxes. Bets of over $1 trillion in hedges–they could have set up a casino in their lobby, in my judgment, the way they were doing business. But they got bailed out.
This was massive exposure. The exposure on the hedge fund was such that the failure of the hedge fund would have had a significant impact on the market.
And so we modernize our banking system. This is unregulated. This isn’t a bank; it is an unregulated hedge fund, except the banks have massive quantities of money in the hedge fund now in order to bail it out.
What does modernization say about this? Nothing, nothing. It says let’s pretend this doesn’t exist, this isn’t a problem, let’s not deal with it.
So we will modernize our financial institutions and we will say about this problem–nothing? Don’t worry about it?
I find it fascinating that about 70 years ago in this country we had examples of institutions the futures of which rested on not just safety and soundness of the institutions themselves but the perception of safety and soundness, that is, banks. Those institutions, the future success and stability of which is only guaranteed by the perception that they are safe and sound, were allowed, 70 years ago, to combine with other kinds of risk enterprises–notably securities underwriting and some other activities–and that was going to be all right. That was back in the Roaring Twenties when we had this go-go economy and the stock market was shooting up like a Roman candle and banks got involved in securities and all of a sudden everybody was doing well and everybody was making massive amounts of money and the country was delirious about it.
Then the house of cards started to fall . As investigations began and bank failures occurred and bank holidays were declared, from that rubble came a description of a future that would separate banking institutions from inherently risky enterprises. A piece of legislation called the Glass-Steagall Act was written, saying maybe we should learn from this, that we should not fuse inherently risky enterprises with institutions whose perception of safety and soundness is the only thing that can guarantee their future success. So we created circumstances that prevented certain institutions like banks from being involved in other activities such as securities underwriting.
Over the years that has all changed. Banks have said, because everybody else has decided they want to intrude into our business–and that is right, a whole lot of folks now set themselves up in a lobby someplace and say we are appearing to be like a bank or want to behave like a bank–the banks say if that is the case, we want to get into their business. So now we have the kind of initiative here in the Congress that says: Let’s forget the lessons of the past; let’s believe the 1920s did not happen; let’s not worry about Glass-Steagall. In fact, let’s repeal Glass-Steagall; let’s decide we can merge once again or fuse together banking enterprises and more risky enterprises, and we can go down the road just as happy as clams and everything will be just great. And of course it will not.
I mentioned hedge funds–talk about risk. How about derivatives? Incidentally, those who vote for this bill will remember this at some point in the future when we have the next catastrophic event that goes with the risks in derivatives. Fortune magazine wrote an article,
The Risk That Won’t Go Away; Financial Derivatives Are Tightening Their Grip on the World Economy and No One Knows How to Control Them.” Somewhere around $70- to $80 trillion in derivatives.I wrote an article in 1994 for the Washington Monthly magazine and derivatives at that point were $35 trillion. You know something, today in this country banks are trading derivatives on their own proprietary accounts. They could just as well put a roulette wheel in the lobby. They could just as well call it a casino. Banks ought not be trading derivatives on their proprietary accounts. I have an amendment to prohibit that. I don’t suppose it would get more than a handful of votes, but I intend to offer it.
Is it part of financial modernization to say this sort of nonsense ought to stop; that banks ought not be able to trade derivatives on their own proprietary accounts because that is inherently gambling? It does not fit with what we know to be the fundamental nature of banking and the requirement of the perception of safety and soundness of these institutions. Does anybody here think this makes any sense, that we have banks involved in derivatives, trading on their own proprietary accounts? Does anybody think it makes any sense to have hedge funds out there with trillions of dollars of derivatives, losing billions of dollars and then being bailed out by a Federal Reserve-led bailout because their failure would be so catastrophic to the rest of the market that we cannot allow them to fail?
And as banks get bigger, of course, we also have another doctrine. The doctrine in banking at the Federal Reserve Board is called,
too big to fail.” Remember that term,too big to fail.” It means at a certain level, banks get too big to fail. They cannot be allowed to fail because the consequence on the economy is catastrophic and therefore these banks are too big to fail. Virtually every single merger you read about in the newspapers these days means we simply have more banks that are too big to fail. That is no-fault capitalism; too big to fail. Does anybody care about that? Does the Fed? Apparently not.Of course the Fed has an inherent conflict of interest. I think, if the Congress were thinking very clearly about the Federal
Reserve Board, they would decide immediately that the Federal Reserve Board is not the locus of supervision of banks. The Federal Reserve Board is in charge of monetary policy. It is fundamentally a conflict of interest to be listening to the Fed about what is good for banks when they are involved in running the monetary policy of this country. If the Federal Reserve Board were, in my judgment, doing what it ought to be doing, it would be leading the charge, saying we need to regulate risky hedge funds because banks are involved in substantial risk on these hedge funds. Apparently hedge funds have become too big to fail. Then there needs to be some regulation.
The Fed, if it were thinking, would say we need to deal with derivatives, and that bank trading on proprietary accounts in derivatives is absurd and ought not happen. Some will remember in 1994 the collapse in the derivative area. You might remember the stories.
Piper’s Managers’ Losses May Total $700 Million.”Corporation After Corporation Had to Write Off Huge Losses Because They Were Involved in the Casino Game on Derivatives.”Bankers Trust Thrives on Pitching Derivatives But Climate Is Shifting.”Losses By P&G May Clinch Plan to Change.”The point is, we have massive amounts of risk in all of these areas. The bill brought to the floor today does nothing to address these risks, nothing at all, but goes ahead and creates new risks by saying we will fuse and merge the opportunities for inherently risky economic activity to be combined with banking which requires the perception of safety and soundness.
We have all these folks here who know a lot more about this than I do, I must admit, who say: Except we are creating firewalls. We have subsidiaries, we have affiliates, we have firewalls. They have everything except common sense; everything, apparently, except a primer on history. I just wish, before people would vote for this bill, they would be forced to read just a bit of the financial history of this country to understand how consequential this decision is going to be.
I, obviously, am in a minority here. We have people who dressed in their best suits and they just think this is the greatest piece of legislation that has ever been given to Congress. We have choruses of folks standing outside this Chamber who spent their lifetimes working to get this done, to say: Would you just forget all that nonsense back in the 1930s about bank failures and Glass-Steagall and the requirement to separate risk from banking enterprises; just forget all that. Time has moved on. Let’s understand that. Change with the times.
We have folks outside who have worked on this very hard and who very much want this to happen. We have a lot of folks in here who are very compliant to say: Absolutely, let me be the lead singer. And here we are. We have this bill, which I will bet, in 5, 10, 15 years from now, we will be back thinking of this bill like we thought of the bill passed in the late 1970s and early 1980s, in which this Congress unhitched the savings and loans so some sleepy little Texas institution could gather brokered deposits from all around America and, like a giant rocket, become a huge enterprise. And guess what. With all the speculation in the S&Ls and brokered deposits and all the things that went with it that this Congress allowed, what did it cost the American taxpayer to bail out that bunch of failures? What did it cost? Hundreds of billions of dollars. I will bet one day somebody is going to look back at this and they are going to say: How on Earth could we have thought it made sense to allow the banking industry to concentrate, through merger and acquisition, to become bigger and bigger and bigger; far more firms in the category of too big to fail? How did we think that was going to help this country? Then to decide we shall fuse it with inherently risky enterprises, how did we think that was going to avoid the lessons of the past?
Then the one question that bothers me, I guess, is–I understand what is in this for banks. I understand what is in it for the security firms. I understand what is in it for all the enterprises. What is in this for the American people? What is in it for the American people? Higher charges, higher fees? Do you know that some banks these days are charging people to see their money? We know that because we pay fees, obviously, to access our money at bank machines. But credit card companies, most of them through banks, are charging people who pay their bills on time because you cannot make money off somebody who wants to pay their bill every month.
If you have a credit card balance–incidentally, you need a credit card these days, because it is pretty hard to do business in cash in some places. You know with all the bills, everybody wants to use credit cards . Many businesses want you to use credit cards . So you use credit cards , then you pay off the entire balance at the end of every month because you don’t want to pay the interest. Some companies have decided you should be penalized for paying off your whole balance. Isn’t that interesting? You talk about turning logic on its head, suggesting we don’t make money on people who pay off their credit card balance every month, so let us decide that our approach to banking is to say those who pay their credit card bill off every month shall be penalized.
Turning logic on its head? I think so. As I said when I started , I am likely to be branded as hopelessly old fashioned on these issues, and I accept that. I suspect that some day in some way others will scratch their heads and say,
I wish we had been a bit more old fashioned in the way we assessed risk and the way we read history and the way we evaluated what would have made sense going forward in modernizing our financial institutions.”Oh, there is a way to modernize them all right, but it is not to be a parrot and say because the industry has moved in this direction, we must now move in this direction and catch them and circle them to say it is fine that you are here now. That is not the appropriate way to address the fundamental challenges we have in the financial services industry.
I am not anti-bank, anti-security or anti-insurance. All of them play a constructive role and important role in this country. But this country will be better served with aggressive antitrust enforcement, with, in my judgment, fewer mergers, with fewer companies moving in to the
too big to fail” category of the Federal Reserve Board, with less concentration.This country will be better served if we have tighter controls, not firewalls that allow these companies to come together and do inherently risky things adjacent to banking enterprises, but to decide the lessons of the 1930s are indelible transcendental lessons we ought to learn and ought to remember.
Mr. President, I have more to say, but I understand my time is about to expire.
jon
@#8 dork:
If I die, my kids have a very shitty life ahead of them. If I die with life insurance, they’ll miss me rather than miss home, transportation, travel, new clothes, regular meals, college, and a lot of other stuff. That’s what life insurance is supposed to be about, and why I pay what amounts to a pittance each month to keep them secure.
Rick Taylor
@Svensker:
Those people are all gone. Just in case you missed it, Kung Fu Monkey wrote a paean to them a while back.
Dennis-SGMM
The next bailout shoe to drop will likely be the HMO’s. Like any other insurer, they too invest their profits. I Googled "HMO+Bailout" and found that a number of small (One state) HMO’s are seeking bailout money from their states. The only plausible reasons for the large HMO’s holding off are either they’re the only institutions that managed not to get hurt by the meltdown (Unlikely) or they fear that seeking bailout funds will lead to calls for nationalization. There are probably PR flacks right now trying to figure out a nice way for the HMO’s to say "Give us the money or you’re all going to get sick and die."
Michael
@John Cole
Even shorter Thomas Doe: "No one could have predicted that innocent dupes would buy into our strategies to create air dollars."
NonyNony
@Dennis-SGMM:
Number two is pretty likely, but there are a few other options. The health insurance companies have a lot of expertise with the kinds of accounting trickery that can keep them in the black even in down conditions. Denying payments and putting clients through the runaround, delaying payments, and whatnot.
Also watch to see which of these "life insurance companies" also have a health insurance arm to them. Shuffling your losses from one company to another is a time-honored large corporation tactic. If the PR hit for losses in health insurance would be too much to bear, doing some accounting tricks to move the losses over to to the life insurance or the property casualty side of the business and then asking for a bailout there might work fine. Especially if there are already some "pure" life insurance companies who are already having problems to provide you with some cover.
But yeah, I can’t imagine that the health insurance folks are going to come out of this whole. Their model is just as dependent on investment as anyone else in the insurance game is. And if they end up asking for bailout money, it might well be game over as far as fighting those public options for health care this time around goes.
Michael
Accompanied, of course, by some trips to Congress for some amendments to ERISA eliminating their last shred of legal accountability for breaching their fiduciary duties.
When you’re a Master of the Universe, individual accountability beyond losing some value in your share holdings and stock options is anathema.
rock
Someone should start keeping track of the number of calls made for entitlement reform by media talking heads and politicians. In fact, let’s start the tally from the date of the big market crash at the end of last year.
"Reforming" social security into the market has always been idiotic (what happened to the idea of diversified investments? I can already buy into the market…the ability to buy an immensely stable return from the government is much more valuable).
But forget all that. My point was just that anyone still calling for social security reform when it’s clear that the financial services sector is a bankrupt pit of fraud deserves to be pilloried.
gex
@NonyNony: Well, ideally, insurance should be about risk pooling. So those who amongst us who are lucky will pay more than we get back, and those who are unlucky will get back more than we pay in.
But generally, those who expect to be lucky don’t pay in at all (think young, healthy people who take their chances on health insurance) and the insurance companies fight hard against paying out for those who are unlucky.
To make it really work as intended it would 1) have to be mandatory and 2) not for profit. Things that this country is very resistant to.
Of course the lack of this kind of insurance hurts some more than others – those who don’t have the cash on hand to withstand the slings and arrows of chance. If you are wealthy enough you can cover it all yourself.
Michael
Can you imagine what the ravenous wolves would have done had that particular cookie jar been opened?
Even when I was a semi-wingnut, it occurred to me that it was a really bad idea.
You’d have had about a 3 year bubble, the executive options would have cashed out, and the inevitable resultant crash would have been revolution-inducing.
Comrade Darkness
>Gramm-Leach-Bliley
Hm, that name, Gramm, where have I heard that name??
Bill H
Cracks me up: car insurance can be mandatory, health insurance cannot. This country is brain dead.
gex
@gex: I should add that the way the people who don’t get back more than they pay in benefit is that there is less uncertainty. If you don’t have to stockpile cash just in case something bad happens, that cash can be used productively in the economy. Ironically, a liberal social safety net would be better for the economy than the Randian jungle.
By the way, how much of this crap is the result of all the extra money from the 401k model of retirement savings being pumped into the finance world?
passerby
@robertdsc:
I’m squarely in this corner.
( Unfortunately, as a "nation of laws" we have to endure the requisite legal blustering from their well paid lawyers. Hope that doesn’t last long.)
I find it frustrating to listen and read about "solutions" and "plans" when the only fix is a complete overhaul. At what point can they be declared bankrupt? The system has been raided by the people in charge (with assists from the government).
It’s infuriating to see gajillions of dollars being funneled into the accounts of thieves. Meanwhile, Joe Blow is being made to pay $50 for a pack of smokes.
Perverse.
Woody
That one is as close to a totally stupid, completely meaningless remark as has ever appeared in this forum…
BenA
I spent seven years writing software for executives in the insurance industry. Insurance is simple: Lots of people put in money when shit isn’t hitting the fan, insurance company keeps some of the money, invests some of the money, pays out some of the money when shit hits the fan. The two tricks involved: knowing who to take money from and knowing how much money to keep around vs. invest.
Most insurance companies get into trouble when they don’t keep enough money on hand to cover losses. I witnessed first hand companies go away when the bubble burst on the stock market industry. It seems people were putting most of their money into tech stocks. Now the same idiots put money into CDS, no big surprise there. Basically anyone who invested in mortgage backed securities (most of us, whether we know it or not) is fucked right now…
I think the idea of having a for-profit insurance company is a horrible idea ESPECIALLY for health insurance… because if you have share holders demanding unrealistic increases in profit you really only have a couple of options: squeeze your customer by increasing premiums, squeeze the doctor by decreasing what you pay them, or deny coverage. Cutting actual cost of care with preventive care and things like that takes time and you don’t see the dollars on a line item… The system can only result in deminished care… there’s no real way around it.
I also found that the insurance industry attracted a lot of not very bright people… or at least the 50-60 companies I delt with. I work in another industry now. I’m much happier.
John S.
Well, if you have a term life policy, that’s a somewhat accurate statement (although the money is more about helping your family after your gone).
Whole life policies – and there are many flavors – are designed to actually be of use to you while still alive, in addition to providing financial assistance to your survivors when you’re gone.
And damn that WSJ article for not definitely indicating whether MetLife (my life insurance company) is in trouble or not!
Comrade Kevin
@Comrade Darkness:
Phil "Nation of Whiners" Gramm? Never heard of him.
passerby
@BenA:
And this dynamic plays out in almost any type of business that’s traded on the Big Board. Example, Whole Foods Market, once it hit the Big Board, employees saw their nice, share-the-wealth type benefits slowly evaporate and stores began to have quarterly visits from their regional HQ to crack the whip to maximize profits, not for the sake of the employees, but for the shareholders.
And I never understood why we bought into the notion of the stock market. Essentially it’s become gambling, so how did they so easily convince us, the rank and file investors, to "invest" our money there when the only way to win was to short-sell. So, the promise was for long-term but the only win was short-term. On its face it’s got unsustainable written all over it.
BenA
@passerby:
I think that the stock market in its purist form is a good idea… it’s another form of insurance… pool money, build something, make a profit…. but anytime you get a lot of money together in one place… you get the selfish assholes who aren’t satisfied and want to make more for themselves. This is why we need to regulate the crap out of it, and put the selfish assholes on the hook, hold them accountable…
This is what the small government, the are no rules but the market, libertarian jackasses fail to comprehend.
Leelee for Obama
The stock market was always a form of gambling. Even blue chips-remember them-weren’t always a great investment because the returns were steady but small. Smart investors learned to put in a stop-loss provision so they didn’t lose their original investment, at least. What’s wrong now is that ordianry retirement instruments, like pension plans and anuities, life insurance and savings accounts are also in jeopardy because all the SMART people suddenly because collectively STOOPID!
Once again, the guys we’re supposed to be able to trust have screwed the people dry.
I forsee a Welfare State that makes Europe look like chicken feed. If we have to bail these assholes out everytime they fuck up, we may as well plan to pre-empt the fucking and just provide a living wage, health care, education and energy stipends to all Americans. I won’t hold my breath, but it’s coming.
I will always have my fall-back position. I plan to throw rotten veggies at politicians, and be sent to prison. Three hots and a cot, books, TV, and marginal health care with a dental plan. Can’t beat that. Being an older female, I expect the seamier possibilites won’t be a problem.
BenA
The other funny thing about insurance companies. They almost never go away because they wrote policies to people who actually want them to pay their claims…. that is unless they are incredibly idiotic and write all their homeowner policies in South Florida. They almost always go away because the management made some boneheaded decision and way over invested their money in Yahoo or mortgage backed CDS or real estate in CT in the 1980s… where if they just got the modest returns of your average checking account they’d be doing fine. That’s why I laugh whenever some asshole Republican says the reason health insurance and medical malpractice insurance is so high is because of lawsuits and we need to institute tort reform. It just means they want the insurance companies to have even more money to gamble irresponsibly with.
Cain
@Zifnab:
Yet those fuckers are still Republicans. Shit on a stool..
cain
gex
@BenA:
Nobody gets even modest returns with the rates the Fed sets. It’s how they game the system. My grandfather was a farmer and when he got out, put everything into savings. For a while he was able to get by on the interest earnings, but hasn’t been able to do anything with that pittance in quite some time. So some of that money went into the market, where they screwed him over again. Now instead of small interest earning his capital has been eroded.
BenA
@gex:
I agree… I should have said would have been fine with even the pitiful returns of your average checking account.
Brian J
I’d be curious to know the answer to that, but my guess is, not much, simply because I can’t imagine the amount that is being invested by people who aren’t already wealthy is really enough to make a difference one way or the other.
TenguPhule
Even shorter Thomas Doe: Don’t blame us!
AnneLaurie
I think you’re reading it backwards: the whole "A nice shiny 401K is better for you than some crummy old pension" scam was invented to expand the financial bubble by tiny contributions from millions of small ‘investors’ when the supply of giant contributions from the relatively small pool of rich people with spare cash became inadequate. Kinda the silk-tie version of changing Las Vegas from the place where gangsters went to launder their loot under cover of a bunch of wealthy parasites to its new incarnation as a convention resort & family getaway.