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Life Health > Life Insurance

Sound And Fury

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There are probably as many reactions to the Treasury Department’s ‘Blueprint for Financial Regulatory Reform’ as there are words in the massive proposal.

One thing, however, stands out. For all the verbiage there is almost nothing in the proposal that does anything to alleviate the current crisis in the credit and housing markets.

It’s like nailing a sign up to keep the chicken coop doors closed once the coyotes have been to visit and left nothing but a few scattered feathers on the ground.

Or, it’s like getting the menu for a grand banquet to be held next month when right now you are suffering from a massive case of indigestion after an hours-long meal and all you want is some immediate relief. Darling, don’t tell me we’re out of Pepto-Bismol.

I wouldn’t say it’s like rearranging the deck chairs on the Titanic (to give a nod to the granddaddy of descriptions for pointless behavior). But that’s only because the U.S. economy is not a ship. The rearranging of financial regulators that would occur under this proposal does a lot of shuffling but doesn’t go to the heart of what got us into the current mess.

Indeed, some of the proposals would make worse the effective lack of oversight that has wreaked havoc on the mortgage market and the balance sheets of some of the biggest names in the business.

Particularly troubling, I find, is a proposal to institute more of a principles-based regulatory scheme for Wall Street firms as opposed to the type of oversight they get now from the Securities and Exchange Commission that tells them what they can and can’t do (at least in theory, although one can’t be sure in the aftermath of this latest burst bubble).

Simply giving Wall Street firms parameters within which what they do is legal and justifiable is simply not warranted by the experience of decade after decade of schemes, innovations and inventions that got out of hand and ended up burning lots of people who put their trust, not to mention their money, into the hands of these ‘innovators.’

When the underlying principle involved is greed I get the willies from any proposal that would institute principles-based regulation for investment banks and their hordes of sales people and creative MBAs.

Here in insurance land, there has been a laser-like focus on those parts of the plan that involve the business. This is natural, of course, since self-interest always latches on to what will most shake our tree as opposed to the other fellow’s. But what has struck me in reading the mainstream press reports on the Treasury blueprint (and that includes the Wall Street Journal) is how little play those proposals that would affect the insurance business have gotten. Shades, once again, of Rodney Dangerfield.

The battle lines formed as expected. The American Council of Life Insurers broke out into the trade group version of the Hallelujah! chorus. State regulators went directly into their Molly Pitcher mode (sans period dress, however). NAIFA broke out into its version of ‘Standing on the Corner.’

NCOIL’s Patrick Kennedy said the blueprint was “biased.” NAILBA’s Doug Mishkin said the OFC proposal was “a significant step.” The Consumer Federation of America’s Bob Hunter called the proposal’s thrust “laughable” and accused it of “gutting consumer protections.”

One doesn’t have to be too much of a cynic to think that maybe all this sound and fury is the true purpose of a proposal that has been in the works for months–which is to say, it is a huge distraction. No one expects much of anything to come of it (and that includes the Treasury Department) before we have a new president and then it will be his (or her) own mess to clean up.


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