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Life Health > Health Insurance > Health Insurance

On the Third Hand: Clawblind

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The Office of Financial Research (OFR) and the Financial Stability Oversight Council (FSOC) recently held a major conference on systemic risk — the danger that the entire world financial system will collapse and leave us all in a world that looks like Hoboken, N.J., the day after Sandy hit. (Creepy.)

The OFR and the FSOC, arms of the Treasury Department, said the focus of the conference was measurement and analysis of financial intermediation.

I think that’s a fancy way of referring to “financial services companies.”

As in, life insurers. Disability insurers. Long-term care insurers. Health insurers. 

I found out about the conference late and, sadly, didn’t watch the live Webcast. The Treasury Department had the video and slides up for a few hours, and I did go through all 70-something slides.

So far, no one from the Treasury Department has gotten back to me with answers about the conference. I’ve asked around, and there’s no evidence that anyone from the insurance industry was at the conference.

As far as I can tell, the list of conference speakers included no one from an insurance trade group, an insurance company or an insurance regulatory agency.

Robert Merton, an economist from the Massachusetts Institute of Technology, created what looked like a beautiful, circular, Spirograph drawing of the financial services sector. The Great Global Economic Spirograph showed that, before 2008, many insurance companies were deeply connected with (surprise!) many banks, securities brokers and mutual fund companies. 

But I saw no evidence from the slides that anyone at the conference spent much time talking about the psychopathic killer elephant in the room: The effort by the Treasury Department’s fellow federal financial services regulators, the Federal Reserve Board officials, to keep interest rates artificially low over a period of many years.

The speakers seemed to be talking mainly about the possibility that problems at one financial services company could pull many other companies down, too.

The speakers didn’t seem to be focusing much on the current reality that the Federal Reserve Board, a quasi-governmental institution, is pulling the financial services sector Spirograph strings tight, tighter, tighter … by pulling interest rates down low enough that creaky banks, creaky homeowners with adjustable rate mortgages, and creaky borrowers with other types of adjustable rate debt can step over the strings without having to jump. Because, let’s face it, they’re in no condition to jump.

But the rates are so low that they seem to be strangling major, respectable, necessary industries, such as the long-term care insurance industry and the long-term disability insurance industry. Acute-care health insurers tend to borrow more and invest less, but even they cannot be happy with the pittance they earn when they do have cash to invest.

The financial services regulators are creating an enormous amount of systemic risk themselves. They are, really, putting their claws around the necks of the insurers, squeezing really hard, then wondering what will happen to the banks and the mutual fund companies after the insurers suffocate — without acknowledging that they are in the process of suffocating the insurers.

On the one hand: I respect the Federal Reserve Board, Fed Chairman Ben Bernanke and Treasury Secretary Timothy Geithner. I think they’ve done their best, under difficult conditions, to deal with messes that Congress has made.

On the other hand: How can the OFR and FSOC hold a meaningful conference on systemic risk without talking at excruciating length about the current low-interest-rate environment?

On the third hand: Of course, sooner or later, the return of obvious, price sticker inflation (not the sneaky “why is that candy bar so light?” type of inflation) will probably force the Fed to let rates go back up, and then we’ll be wondering why they let rates rise 5 percentage points in a year. 

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