Legislation that impacts an industry or business generally falls into one of two broad categories. One is forced upon them and initiated by others, while the other is initiated and promoted by the industry itself. Both are fraught with peril and can be equally dangerous and require the expenditure of legislative capital, meaning time, money, influence and bargaining power.
The first type of such legislation may be punitive in nature and intended to curb some abuse, perceived or real. Or, it may simply be an increase in taxes to satisfy a Congress looking for additional revenue. Sometimes it is a combination of both, if, for example, tax preferences are being used to benefit the wealthy in unintentional ways. We have been down that road before when life insurance was being hailed as the last great tax shelter. That’s how we got modified endowments. Currently we may be vulnerable because of the way some life settlements are stretching the envelope.
The second type, initiated by an industry, may also come at a price. What is the business willing to give up to get this new piece of legislation? It is important not to swap an orchard for an apple. The best example of this that I can remember occurred as a result of the real estate business, through its association of realtors, aggressively assaulting Congress to balance the federal budget. Congress took a step in that direction by shutting down real estate tax shelters then in vogue. The result–real estate prices plummeted and savings and loan institutions collapsed, costing the government mega millions.
Be careful what you ask for; the price may be more than you can bear.
In any event, both types of legislative initiatives are always impacted by the current environment. As I write this, the Treasury Department has just announced that it is taking over Fannie Mae and Freddie Mac, backers of about 50% of the country’s mortgages. Additionally, the last count indicates that there are 117 banks in various degrees of “trouble.” Some will make it, some won’t. The takeover of Fannie and Freddie has been estimated to cost up to $25 billion; no telling what propping up these banks will cost. Add to this the plight of investment banks and hedge funds and it’s a pretty dismal picture of the federally regulated sector of financial services.
With few exceptions the state-regulated insurance business is standing tall among financial institutions. This is a fact that will not be overlooked by both NCOIL and the National Association of Insurance Commissioners as they continue to oppose the creation of an optional federal charter. They will no doubt be aggressive in pointing this out to a Congress saddled with the ills and costs associated with the foregoing failures.