Keeping the banking and financial services industries separate from insurance companies is the right move, you’re right, and is really a form of regulation anyway. The biggest lesson I’ve taken from the last year and a half is that people want to ‘believe’ in the free market as a self-regulating force. The free market works really well on a Micro level, but the economy as a whole needs a watchdog. Game Theory describes this pretty well – a bunch of profit seeking entities making decisions in their own self interest can lead to a sub-optimal situation. This is because of interdependancy of events. Making loans to people who cannot really afford them is not risky if housing prices are going up – the collateral is secure. Since there was so little risk (if the owner defaults, you can sell the house and not lose money) individual investors had every incentive to make more bad loans. This process continued and people started defaulting. That was fine at first, but too many defaults and house prices start to come down. Then homeowners are the ones with a choice – pour money down the drain on a home that’s not worth what you owe, or default. The ones that choose to default drive down the home prices further, causing more defaults.
These were all individuals making rational decisions, but there is a domino effect that no individual has ‘ownership’ of. We need regulators to put up barriers to keep the parameters of the free market (like the ratio of risky loans to safe loans) in a safe range, one that will not trigger a chain of events.
I realize I digressed quite a bit from the AIG article. I hope this country has learned enough to put regulatory powers in place to prevent the dominoes from toppling again. No one else is gonna do it.
If you make it complex enough, no one will be able to regulate it. It is that simple.
Our government has grown too large to be effective. We have allowed this to ooze over into our private sector.
And we are surprised?
As far as regulation, it would help if we employed regulators who MERIT the job, justifying their employment by what they know, not who they know. Of course, that is an age old dilemma, and we would have to reinvent the wheel. This has been coming for a long time, it is hard to imagine that the people who should know it is coming, didn’t know. Or did they?
We are still the greatest nation in the world, we have the best and the brightest, but I guess they are all hiding right now.
“If AIG did not get the first bailout, here is what the news would be saying today.
Unemployment rate at 5%. The largest Insurer and corporate entities collapsed six months ago. The domino effect did shut down some other businesses including banks such as Citigroup, Wells Fargo, etc… However, Sentry, All State, ABC Bank and DEF Bank as well as many others have grown 100% in size. Housing prices have stabilized, the unemployment rate is going down and the stock market is finally climbing above the 9,500 mark.”
Oh wait, we bailed them out, unemployment is at 8.1, Federal government added another trillion to deficit, stock market is at 6,500, taxes will be going up….
Look …we need to stop the calling of credit defaults as insurance. It was GAMBLING. There is a difference!
However, because the Federal Government wants to eventually control insurance also, they will keep pounding on this as a FAILURE of the current insurance regulatory system, and the need for the Fed to step in (Lord, keep me from gagging!).
Call me a Paul Revere wanna-be, but the red coats are coming, THE RED COATS ARE COMING!
The outrage shown by Congress is both unwarranted and hypocritical. It is the body that repealed the Glass-Steagal Act when it adopted the Gramm-Leach-Bliley Act just so these kinds of financial conglomerates (AIG and Citi)could self deal in all lines of financial services. That Congress wants to take over the regulation of insurance based upon it own own colossal regulatory failures only proves Congress has no conscience and will never accept responsibility for its own moronic conduct. It is an insult to our intelligence to even suggest Congress is capable of effectively regulating insurance when it has absolutely no experience with insurance, witness National Flood Insurance if you can call it that.
I rarely comment on any of the articles, mainly because it seems mostly a waste of time.
A few zealots on each side of an issue attempt to destroy rational thought and deny logic in general.
However, regarding the comments from “actuary” I feel the need to voice my opinion. I’ll keep it brief and hope it will not be wasted.
First, I have had enough of the bashing of the “free market”. Give it up. We DO NOT have, and HAVE NOT HAD, a free market in a long, long time. The mess we are in was created be OVER-regulation, not UNDER-regulation. Granted the Credit Default guys/gals were asleep at the wheel, but the underlying problem, mortgage defaults, was directly caused by the merry band headed by Barney Frank, Chris Dodd and their other cohorts (maybe some Republicans too, I just do not know their names so please do not turn this into a freaking political debate).
The Federal Reserve, while not directly regulating, certainly played a huge role in the mess and they are a part of the government intervention problem.
Second, regarding the line, “These were all individuals making rational decisions…”. NO, these were people being manipulated into decisions by the pressure of the Fed and the CRI.
Who in their right mind really believes that the idiots that created this mess are going to get us out?
I apologize for the lengthy response, but when someone presents themselves as an actuary there is an implied assumption that they are studied and versed in logic and to a lesser degree economics. If indeed you are an actuary (or even a student) I encourage you to attempt to consider solutions at a different level of thought and understanding than the morons that created the current conditions.
Hey, news story…your an idiot…stay out of the way….you do not have a clue…and if you were Kreskin you would not need to have the time to sit and write this dribble!
Oh I forgot Wazzup, Obama is your Messiah. Get a life and start thinking for yourself. The Government does not have all the answers. However, you would probably due pretty well in China or Korea. Oh hail mighty government!!
Additional regulation for enterprises so large and complex may not be the best solution, especially regulation sponsored by the US Congress who are the only crooks who can claim to have more greed and selfish intentions than the financial services chieftains who put us in this situation. Why not keeping any single organization from getting that large in the first place?
Didn’t some people predict this type of thing could happen when the powers-that-be decided to take down the wall between banking and insurance? Didn’t the Spitzer-as-AG administration start to look into the incestuous goings on at the largest financial services institutions?
If we don’t let the financial services organizations get so large as to make regulation cumbersome or impossible, and so large as to have all the power in so few hands, we won’t need additional regulation – or regulators. The free market system can do it’s job, as can the existing group of overseers.
Wow. Ok. Well I’m not about to debate the merits of the Fed’s existence with you – and you’re right, the government interference is a big factor in this mess – the pro-housing agenda caused a huge market distortion in the availability of housing money. I’m not advocating *that* type of regulation, which I would argue can barely be called regulation. Insurance companies are heavily “regulated” but most of it focuses on financial stability – making sure companies can fund the risk they assume. I am saying the free market does not have the incentives to look at the big picture – like children running amok in the playground. I am not saying the government should get in the sandbox with them, just keep the children from getting in the van with the guy holding the puppy.
Feel free to criticize anyone’s reasoning or conclusions, but don’t lump the “free market bashers” together into some kind of mindless category. Yes I have studied logic and economics, and I urge you to consider that it is possible to reach similar conclusions via different logical paths.
Keeping the banking and financial services industries separate from insurance companies is the right move, you’re right, and is really a form of regulation anyway. The biggest lesson I’ve taken from the last year and a half is that people want to ‘believe’ in the free market as a self-regulating force. The free market works really well on a Micro level, but the economy as a whole needs a watchdog. Game Theory describes this pretty well – a bunch of profit seeking entities making decisions in their own self interest can lead to a sub-optimal situation. This is because of interdependancy of events. Making loans to people who cannot really afford them is not risky if housing prices are going up – the collateral is secure. Since there was so little risk (if the owner defaults, you can sell the house and not lose money) individual investors had every incentive to make more bad loans. This process continued and people started defaulting. That was fine at first, but too many defaults and house prices start to come down. Then homeowners are the ones with a choice – pour money down the drain on a home that’s not worth what you owe, or default. The ones that choose to default drive down the home prices further, causing more defaults.
These were all individuals making rational decisions, but there is a domino effect that no individual has ‘ownership’ of. We need regulators to put up barriers to keep the parameters of the free market (like the ratio of risky loans to safe loans) in a safe range, one that will not trigger a chain of events.
I realize I digressed quite a bit from the AIG article. I hope this country has learned enough to put regulatory powers in place to prevent the dominoes from toppling again. No one else is gonna do it.
If you make it complex enough, no one will be able to regulate it. It is that simple.
Our government has grown too large to be effective. We have allowed this to ooze over into our private sector.
And we are surprised?
As far as regulation, it would help if we employed regulators who MERIT the job, justifying their employment by what they know, not who they know. Of course, that is an age old dilemma, and we would have to reinvent the wheel. This has been coming for a long time, it is hard to imagine that the people who should know it is coming, didn’t know. Or did they?
We are still the greatest nation in the world, we have the best and the brightest, but I guess they are all hiding right now.
WE CAN FIX THIS. We don’t have a choice.
Is it correct that AIG insures the Pension Trust of the United States Congress ???
“If AIG did not get the first bailout, here is what the news would be saying today.
Unemployment rate at 5%. The largest Insurer and corporate entities collapsed six months ago. The domino effect did shut down some other businesses including banks such as Citigroup, Wells Fargo, etc… However, Sentry, All State, ABC Bank and DEF Bank as well as many others have grown 100% in size. Housing prices have stabilized, the unemployment rate is going down and the stock market is finally climbing above the 9,500 mark.”
Oh wait, we bailed them out, unemployment is at 8.1, Federal government added another trillion to deficit, stock market is at 6,500, taxes will be going up….
No AIG does not insure the retirement plan of the government, we as tax payers do that.
Look …we need to stop the calling of credit defaults as insurance. It was GAMBLING. There is a difference!
However, because the Federal Government wants to eventually control insurance also, they will keep pounding on this as a FAILURE of the current insurance regulatory system, and the need for the Fed to step in (Lord, keep me from gagging!).
Call me a Paul Revere wanna-be, but the red coats are coming, THE RED COATS ARE COMING!
Straightjackets are not far behind.
The outrage shown by Congress is both unwarranted and hypocritical. It is the body that repealed the Glass-Steagal Act when it adopted the Gramm-Leach-Bliley Act just so these kinds of financial conglomerates (AIG and Citi)could self deal in all lines of financial services. That Congress wants to take over the regulation of insurance based upon it own own colossal regulatory failures only proves Congress has no conscience and will never accept responsibility for its own moronic conduct. It is an insult to our intelligence to even suggest Congress is capable of effectively regulating insurance when it has absolutely no experience with insurance, witness National Flood Insurance if you can call it that.
Precisely!!!
Having the facts won’t stop them, though.
I rarely comment on any of the articles, mainly because it seems mostly a waste of time.
A few zealots on each side of an issue attempt to destroy rational thought and deny logic in general.
However, regarding the comments from “actuary” I feel the need to voice my opinion. I’ll keep it brief and hope it will not be wasted.
First, I have had enough of the bashing of the “free market”. Give it up. We DO NOT have, and HAVE NOT HAD, a free market in a long, long time. The mess we are in was created be OVER-regulation, not UNDER-regulation. Granted the Credit Default guys/gals were asleep at the wheel, but the underlying problem, mortgage defaults, was directly caused by the merry band headed by Barney Frank, Chris Dodd and their other cohorts (maybe some Republicans too, I just do not know their names so please do not turn this into a freaking political debate).
The Federal Reserve, while not directly regulating, certainly played a huge role in the mess and they are a part of the government intervention problem.
Second, regarding the line, “These were all individuals making rational decisions…”. NO, these were people being manipulated into decisions by the pressure of the Fed and the CRI.
Who in their right mind really believes that the idiots that created this mess are going to get us out?
I apologize for the lengthy response, but when someone presents themselves as an actuary there is an implied assumption that they are studied and versed in logic and to a lesser degree economics. If indeed you are an actuary (or even a student) I encourage you to attempt to consider solutions at a different level of thought and understanding than the morons that created the current conditions.
Hey, news story…your an idiot…stay out of the way….you do not have a clue…and if you were Kreskin you would not need to have the time to sit and write this dribble!
Oh I forgot Wazzup, Obama is your Messiah. Get a life and start thinking for yourself. The Government does not have all the answers. However, you would probably due pretty well in China or Korea. Oh hail mighty government!!
Additional regulation for enterprises so large and complex may not be the best solution, especially regulation sponsored by the US Congress who are the only crooks who can claim to have more greed and selfish intentions than the financial services chieftains who put us in this situation. Why not keeping any single organization from getting that large in the first place?
Didn’t some people predict this type of thing could happen when the powers-that-be decided to take down the wall between banking and insurance? Didn’t the Spitzer-as-AG administration start to look into the incestuous goings on at the largest financial services institutions?
If we don’t let the financial services organizations get so large as to make regulation cumbersome or impossible, and so large as to have all the power in so few hands, we won’t need additional regulation – or regulators. The free market system can do it’s job, as can the existing group of overseers.
Wow. Ok. Well I’m not about to debate the merits of the Fed’s existence with you – and you’re right, the government interference is a big factor in this mess – the pro-housing agenda caused a huge market distortion in the availability of housing money. I’m not advocating *that* type of regulation, which I would argue can barely be called regulation. Insurance companies are heavily “regulated” but most of it focuses on financial stability – making sure companies can fund the risk they assume. I am saying the free market does not have the incentives to look at the big picture – like children running amok in the playground. I am not saying the government should get in the sandbox with them, just keep the children from getting in the van with the guy holding the puppy.
Feel free to criticize anyone’s reasoning or conclusions, but don’t lump the “free market bashers” together into some kind of mindless category. Yes I have studied logic and economics, and I urge you to consider that it is possible to reach similar conclusions via different logical paths.