The "team of rivals" metaphor has been overused lately as the news networks try to dumb down to the unwashed multitudes the reason behind the rapprochement between President-elect Obama and Sen. Hillary Clinton, his erstwhile antagonist and now likely (as of this writing) Secretary of State.
The networks sought to use the title of a book by Doris Kearns Goodwin to explain that President-elect Obama will likely appoint Mrs. Clinton because he needs an experienced hand to deal with time-consuming foreign policy issues as he wrestles with an economy that has gone bad in a hurry.
It's very simple, really.
Therefore, it is very refreshing that Sheila Bair, the chairman of the Federal Deposit Insurance Corporation, put herself on the line recently to explain to directors of the American Insurance Association that the term has other meanings, and that it is critical the insurance industry understands one of them as it seeks to find a niche in the brave new world of federal regulation.
Ms. Bair is a decent person, and an effective, experienced and flexible administrator who has been forced to deal with economic turbulence thought to have been put to rest by government actions of more than 70 years ago.
Effectively, Ms. Bair said the industry's well-laid and thought-out plans to create its own agency to regulate it at the federal level, known generically as the optional federal charter, may be another victim of the economic tsunami that has sent the economy reeling and official Washington floundering as it tries various policy options to deal with the continuing meltdown.
The reasons, as she explained to the board of the AIA on Nov. 14, are several-fold.
First, all the federal banking regulators, as well as the Treasury Department, are busy dealing with their own problems, led by the fact that short-sellers are taking advantage of the frozen credit markets and the various toxic assets held by financial institutions to mark the prices of these firms down to unprecedented levels.
Added to this mix is the fact that these regulators are normally a team of rivals, seeking to add to the institutions they oversee, and constantly pointing out the inadequacies and failures of their erstwhile colleagues.
"The last thing the federal regulators need is to be distracted by turf fights among the four current federal regulators," Ms. Bair explained.
Moreover, she continued, "Re-regulation will favor fewer regulators at the federal level, rather than more, and it will be done in phases. All current federal regulators have their hands full with the various bailout and stimulus packages that Congress has passed."
Translated for the insurance industry, what this says is that despite the years the industry has spent building support in Washington for an optional federal charter, economic events have overtaken that initiative.
The life industry has been wrestling with the most appropriate way to approach federal regulation since 2002, as it sought the best way to deal with the industry downturn prompted by an economic slowdown and exacerbated by the lower volumes created by the major Bush tax cuts.
Added to the mix was the uncertainty created by growing political support for phasing out the estate tax, which also hurt industry revenues.
The answer that emerged was the option to have one federal regulator instead of 54 jurisdictional ones, a move that would have reduced costs.
Equally important, but rarely publicly stated, was the fact that the industry began to realize that the 54-jurisdictional regulatory system was making them inefficient competitors with their own rivals, the banks, securities firms and mutual funds.
In her comments to the AIA board, Ms. Bair wisely counseled them to look beyond an optional federal charter if they desire federal regulation.
She said the insurance industry should save itself a lot of time flailing the dead horse of OFC and look instead to the existing regulators, for example, the Federal Reserve Board, the Office of the Comptroller of the Currency, as well as the FDIC, as future regulatory homes.
An industry lobbyist pointed out this week that Rep. Barney Frank, D-Mass., chairman of the House Financial Services Committee, was probably sincere last summer when he told those attending an American Council of Life Insurers "tea" that dealing with an OFC for life insurers and agents would be one of his first orders of business next year.
"But that was before the economic decline picked up speed, and the problems of financial institutions, including American Insurance Group, started becoming endemic," the lobbyist said.
Now, the lobbyist said, "the old approach may not be appropriate, and more pragmatic solutions must be in order."
It's looking like an OFC may be yet one more piece of wreckage that the financial tsunami is leaving in its wake.
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