In spite of my skepticism regarding the ability of new regulations to avert another financial meltdown, I have to admit that we seem to be making progress. At least we can, in the words of Archibald Cox, "take joy in the endeavor." Cox was the Watergate Special Prosecutor who was fired by President Nixon in what became the "Saturday Night massacre." Later, in a speech to young workers experiencing low morale, if not absolute despair, at what they were experiencing in Washington politics at the time, he pointed out that success came incrementally. You had to gain sustenance from a series of small victories in a never-ending battle.
In the same vein, I’m reminded of a government employee on the stand during one of the Enron trials who had to remind some attorney badgering him that he, the government employee, was speaking as a representative of the People of the United States of America. I’m reminded of the female justice department lawyer who put Al Capone behind bars by thinking up the unique approach of getting him for tax evasion. When our government gets it right, it can be a thrill to watch.
So lately, We the People have unleashed the threat of calling some major insurance companies "Systematically Important Financial Institutions" (SIFI’s) otherwise known as "too-big-to-fail." This is a major shot across the bow of an industry that has been immune to federal regulation since the McCarron Fergusen Act of 1945. Insurance was then deemed to be "not a business that could be considered interstate commerce," so it fell to the states to regulate it.
Metropolitan Life is the latest to find itself in the cross hairs of the new Financial Stability Oversight Council of the Treasury Department. Presumably, this regulator will take the reins from the hands of what, until now, have been the sole provenance of feckless, underfunded state insurance regulators --- the latter largely elected thanks to donations from major insurance companies. That explains why, for example, there are so many examples of the industry reaping rewards at the expense of the investing public.
So far, according to Mary Williams Walsh writing for the New York Times, there have been three other insurance companies that have earned the distinction, but why any large company would fight the designation stems from the fact that someone else will now control the amount of the company’s own assets that back up the risks these companies take. The government would do this, of course, to avoid the situation in 2008 when Hartford Insurance, for example, begged for about $3 billion of government money to save it from insolvency. AIG, of course, was the biggest insurance company culprit at the time with highly-leveraged derivative positions that led to the collapse. By all appearances, we have brought a halt to the cycle of unfettered capitalism allowing financial institutions to make unseemly amounts of money when times are good only to need a bailout from taxpayers when things unravel.
It gets worse for them. Insurance companies have the Dodd Frank regulations to fear because just around the corner lurks the newly-formed Consumer Protection Agency that banks and insurance companies just hate. When you get "We the People of the United States of America" lined up to do battle with the insurance industry, they can be far more effective than what to date has just been "we the people of the fifty different states working independently." There’s no comparison, and the brainchild of Elizabeth Warren will offer hope to Long Term Care insurance buyers who have seen their "locked-in" premiums double or triple under the "watchful eye" of state regulators. Moreover, people like the whistle-blower who determined that Mass Mutual Financial Group was short-changing buyers of its "guaranteed" investment products will have access to a single "bully pulpit" going forward. Unlike toothless self-regulatory agencies, Dodd Frank offers powerful protection against retaliation for whistle-blowers, according to Joe Nocera writing for the New York Times.
So the late Archibald Cox was right when he encouraged us to "take joy in the endeavor." Eating the elephant one bite at a time certainly has its place in Washington. I, for one, enjoy watching it unfold and am seeing it all as generally positive.