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February 15, 2009 at 07:00 PM
It will soon be George Washington’s birthday, which brings back memories of the cherry trees and hatchets I learned about in my youth.
However, while celebrating the holiday, I am also very much cognizant that there is a flip side to telling the truth, i.e., that it sometimes puts one’s head on the chopping block.
I feel like I’m doing that when I say that people are barking up the wrong tree in basing their justification for continued state insurance regulation on the fact that American International Group’s problems related to activities only at the holding company level, where the company was supposedly regulated by a federal agency, the Office of Thrift Supervision.
This issue is being raised now against the background of a barrage of steps undertaken by the new Obama administration to stabilize a financial services sector reeling from the impact of overleveraging, rampant speculation and irresponsible lending–and the reviews of the initial steps taken last fall to combat it.
And, wherever one turns, wafting over all the buildings where the crisis is being talked about and acted on is a big cloud spelled A-I-G.
For example, in discussing the thinking behind the Obama administration’s game plan for resuscitating the final sector, the Washington Post reported on Feb. 8, “Some senior [Obama administration] officials now view AIG as a cautionary tale.
“The company has been forced to sell valuable business units into a market that is lackluster at best,” the article said.
“In addition, AIG has promised nearly a billion dollars in retention pay to employees it says are vital, only to be scolded by lawmakers for wasting taxpayer money,” the article continued. “Insurance brokers have become reluctant to push the company’s products. The brand has been badly tarnished, reducing the government’s ability to return the company to private investors.”
Additionally, a report by the board overseeing the Troubled Asset Relief Program shows that the government’s investment in AIG was the worst decision made under the TARP, and that the value of the government’s investment in AIG declined 63% within 6 weeks of the time the money was expended.
And unlike the wife’s tale being spun by supporters of state regulation, the OTS, whatever the claim, was only distantly involved in regulation of AIG.
