On April 2nd, U.S. Rep Melissa Bean (D-Ill.) and Rep Ed Royce (R-Calif.) reintroduced optional federal charter (OFC) legislation in the House calling it “The National Insurance Consumer Protection Act”. I find that title almost laughable and am offended by legislators who repackage bills with names meant to take advantage of citizen’s fears and prejudices. What makes this bill laughable is that the Federal Government is a big reason the U.S. economy is in a deep recession and possibly headed for a depression. Where was all the oversight when the shenanigans on Wall Street and at the Financial Products Division of AIG were occurring? I capitalize and underline the division name because the Insurance Division of AIG is solid as a rock. Thanks to the oversight of the New York State Insurance Department. I firmly believe that if credit default swaps (CDS) had been considered insurance they would have never gotten through the approval process at the New York Department. Financial instruments based on algorithms meant to beat market timing and allowing 30 to 1 risk to capital ratios would never have seen the light of day. They were beyond highly speculative, based solely on greed and all of us have suffered as a result of the irresponsible use of them.
When the idea of OFC or an optional federal charter comes up you have to wonder why large insurance companies and mega brokers endorse the idea. Of course they will tell you that it will improve their ability to do business and that might very well be true. You do however have to be concerned that they may have some ulterior motives in endorsing such a concept. Don’t forget it was many of these same companies and brokers who were involved in the bid rigging that was ultimately uncovered and prosecuted by various state attorney generals.
Let’s look at the Federal Government’s track record in overseeing and regulating. Let’s start with the current financial mess we find ourselves in. They had plenty of opportunity to step in and regulate this mess before it got to where it is today, but unfortunately they didn’t. Now that everything is in shambles and they are pouring billions of dollars of stimulus money into the system they can’t even regulate how that money is spent. They spend most of their time pointing fingers at each other and attempting to declare their innocence. Even if we put the current financial crisis aside we don’t have to look too far to judge the effectiveness of federal regulation. I’m sure Bernie Madoff was for federal regulation. Look how far he got before the Feds figured out what he was up to. Even after knowledgeable, informed people drew their attention to Madoff and the SEC had done several audits they still had no idea it was a Ponzi scheme. If that wasn’t bad enough look at the number of Madoff copycats that have stolen other investor’s money.
How about the IRS? They do a great job, right? You tell me. Recently how many politicians and public personalities have been caught not paying their taxes. How many of the current administration are in that group? I believe Treasury Secretary Geithner had that problem. How about Congressman Charles Rangel.
Don’t you feel he should be able to not pay taxes on the $75,000 in rental income from his luxury beachfront villa in the Caribbean? What’s obscene is that’s more than many Americans make in gross income annually. Kansas Governor Karen Sebelius recently corrected 3 years of taxes by paying $7,040 in back taxes involving charitable contributions, the sale of a home and business expenses. Oh yeah, that all arose because of confirmation proceedings to make her the head of Health and Human Services not because of the IRS. Even when the IRS finally catches someone, especially someone of power or celebrity, they always do whatever they can to lighten the burden. The New York Post recently reported on the $1.8 million in back taxes old Reverend Al Sharpton owed and the deal he worked out with the IRS. Apparently they agreed to him paying only $1 million which included a $500,000 upfront payment. Must have been some kind of two for one sale that day.
Maybe I’m being too hard on the Federal Government expecting them to catch crooked financiers, greedy Wall St. firms and tax cheats. They probably do a much better job in other areas they regulate. How about the FDA? They do a great job controlling the safety of the food that reaches our table. Ask anybody who buys lettuce for their salad, products made with peanut butter or snacks on pistachios. I bet they do better in handling items imported into America. Products like tainted pet food and baby formula, children’s toys painted with lead and drywall that makes people sick and corrodes their wiring will never reach the U. S. market while the Federal Government is in charge.
I’m sure by now you have figured out I have absolutely no confidence in the Federal Government’s ability to oversee anything especially insurance. No one has yet to show where state regulation fell down. Sure we would like to see the approval process for rates and products speed up but if the extra time means consumer protection it’s worth it. I think standardization of licensing and CE make sense but doesn’t require an optional federal charter. To Representatives Bean and Royce I say, leave the regulation of insurance to the states and spend your time cleaning up the many significant issues and problems you already have.
