Insurance industry during economic crisis

Posted: Mon Jan 19, 2009 10:45 am Post Subject:

Gary, how much do you know about Wendy Gramm?

The Gramm-Leach-Bliley Act, also known as the Gramm-Leach-Bliley Financial Services Modernization Act, Pub.L. 106-102, 113 Stat. 1338, enacted November 12, 1999, is an Act of the United States Congress which repealed part of the Glass-Steagall Act of 1933, opening up {my words FRAUD} competition among banks, securities companies and insurance companies. The Glass-Steagall Act prohibited a bank from offering investment, commercial banking, and insurance services.

Economists Robert Ekelund and Mark Thornton have criticized the Act as contributing to the 2007 subprime mortgage financial crisis, arguing that while "in a world regulated by a gold standard, 100% reserve banking, and no FDIC deposit insurance" the Financial Services Modernization Act would have made "perfect sense" as a legitimate act of deregulation, under the present fiat monetary system it "amounts to corporate welfare for financial institutions and a moral hazard that will make taxpayers pay dearly".

"I don't see that signing that bill had anything to do with the current crisis. Indeed, one of the things that has helped stabilize the current situation as much as it has is the purchase of Merrill Lynch by Bank of America, which was much smoother than it would have been if I hadn't signed that bill ... On the Glass-Steagall thing, like I said, if you could demonstrate to me that it was a mistake, I'd be glad to look at the evidence."

Kenneth Lewis gambled on bold acquisitions to build Bank of America into the nation's largest bank.

But the need for fresh government support to grapple with the newly revealed losses at Merrill Lynch, the brokerage firm he snapped up in a rapid-fire arrangement at the height of the financial crisis in September, raises questions about whether the bank has gone a deal too far.

Two weeks after closing its purchase of Merrill Lynch at the urging of U.S. regulators, the government cemented a deal at midnight Thursday to supply Bank of America with a fresh $20 billion capital injection and absorb as much as $98.2 billion in losses on toxic assets, according to people involved in the transaction.

The bank had been pressing the government for help after it was surprised to learn that Merrill would be taking a fourth-quarter write-down of $15 billion to $20 billion, according to two people who have been briefed on the situation, in addition to Bank of America's rising consumer loan losses.

Posted: Mon Jan 19, 2009 12:03 pm Post Subject:

Wendy Gramm, wasn't she somehow involved in the Enron debacal? Yep thought I remembered that name.....here we go...

You'd expect Wendy Gramm, now head of the Regulatory Studies Program at George Mason University's Mercatus Center, to recognize that the Enron board's extraordinary failure indicated a dire need for reform. You'd be dead wrong.

Gramm thinks the system works just fine. After all, she pocketed an estimated $2 million as an Enron director.

Gramm joined Enron's board after chairing the Commodities and Futures Trading Commission, where she issued regulations that legalized the type of electricity trading that helped Enron make millions in illegal profits (on Gramm's watch as a director). As a member of Enron's audit committee, Gramm found nothing wrong with accounting tricks that inflated earnings and siphoned money to selected executives in violation of company rules, if not federal laws. Coincidentally, Enron also delivered campaign cash to Gramm's husband, former U.S. Sen. Phil Gramm of Texas, and now provides that arch opponent of big government with his first private-sector job in decades at the Swiss bank UBS, which owns the rump of Enron's energy trading operations. Wendy Gramm's comments to the SEC combine her signature knee-jerk dismissal of any government regulation as unnecessary and potentially harmful with this analysis of how boards of directors should function vis-à-vis investors:

"Boards who [sic] consistently operate at variance with shareholder interests (i.e., who do not maximize share values) will see the values of their firm's shares fall, other things equal. As the shares become cheaper, the firm becomes a more attractive target for takeover. Even barring takeover (because of, say, a poison pill provision), a persistent abuse of shareholders interests must eventually result in bankruptcy. In either instance, assets will be stripped from the self-dealing board's control and surrendered to others who may be better able to enhance share values. Indeed, the recent spate of corporate scandals has, if anything, provided vivid testimony as to how quickly and efficiently this market process works in practice."

In other words, Enron's bankruptcy was a triumph of market efficiency. Gramm's vision understandably ignores directors' fiduciary duty to shareholders; she ignored it while sitting on Enron's board, too, so at least she's consistent. She's opposed to regulations that might give investors tools to ensure that directors perform their legal oversight obligations; the market demands that shareholders watch helplessly if executive malfeasance skins the value of their holdings toward zero (and vultures like UBS can get the bones cheap).

While she preaches living by the market's risks and rewards, Gramm found a pretext to avoid that risk herself while making decisions that helped bankrupt Enron.

In 1999, Gramm declared that owning Enron stock presented a conflict of interest with her duties as a director. That assertion is pure drivel, violating basic common sense and norms of good corporate governance; directors legally bound to protect investors should be investors, too. By Gramm's logic, only non-citizens should be lawmakers or judges, so their decisions won't be tainted by having to live with the consequences.

Gramm's ludicrous claim made sense in one context: It provided a convenient alibi to cash out her Enron shareholdings for $300,000 and to insist on getting paid in cash while she was approving the company's secret steps along the financial precipice. When Enron went over the cliff, the Gramms even portrayed themselves as victims: Wendy's stand on her imaginary moral high ground led her to sell before Enron's price peaked, they whined, so she forfeited some potential profits. Enron employees lacking Gramm's finely tuned ethics, and the rest of the investing public lacking her inside knowledge of the company's twisted finances, were left holding worthless paper.

As Gramm sees it, if you lost your retirement savings or your job because you trusted me to do my duty, quit whining: That's how markets work. My friends and I made lots of money because we kept government regulators out of the markets and rigged things in our favor. Don't introduce even a hint of democracy into voting for corporate directors that might prevent us from doing it again.

It's sad to see this argument on the letterhead of George Mason University. The real George Mason was a passionate defender of democracy with a claim to be the first American shareholder activist. Mason protested strongly in 1763 when the British government unilaterally revoked the charter of the Ohio Company, where he served as a director. Mason exhorted those who accept the responsibility of serving on boards "never to let the motives of private interest or ambition to induce them to betray, nor the terrors of poverty and disgrace, or the fear of danger or of death deter them."

It would be great to hear Wendy Gramm explain her work at Enron to Mason -- or to the public, for that matter -- instead of hiding behind his name to take cheap shots at reform that might prevent abuses from which she personally profited.

Posted: Mon Jan 19, 2009 01:56 pm Post Subject:

Thanks for the info Lori.

:P :wink: AND thanks to Al Gore for "inventing" the Internet so people can do their own research on these self serving bass towards and bass towardettes. :wink: :P

GREAT INFO!

Posted: Mon Jan 19, 2009 01:59 pm Post Subject:

Yeah, she doesn't sound like the kind of chick I'd much care to run around with... :lol: in fact sounds like yet another, 'it's ALL about me'' politican...IMO of course...oh yeah...thanks' big al... :lol: :wink: :roll:

Posted: Mon Jan 19, 2009 02:43 pm Post Subject:

There is more

Wendy Gramm - State Farm, IBP. I like the name "Dead Peasant Life Insurance". lol

Posted: Mon Jan 19, 2009 05:38 pm Post Subject:

That's great information Cascade Dave.

Ya know,.... our government is loaded with people with PhD's in economics but have less than a 4th grade education in common sense and they have never even run a lemonade stand.

Posted: Tue Jan 20, 2009 01:50 pm Post Subject:

Ya.... what are we gonna do with all these lemons? ;)

Posted: Sun Jan 25, 2009 01:32 pm Post Subject:

joven222 wrote:

I am not from the US so I would like to ask this question. We all know that US is currently on its economic recession. What would happened to the insurance industry because of this? Can economic crisis affect the Insurance industry? If yes, in what way?

By Mercedes Jackson | Published November 20, 2008
From Senior Market Advisor News Desk

According to the 59 indexed annuity carriers participating in the Advantage Index Sales & Market Report, total third-quarter sales were $6.7 billion, up 5.2 percent from the same period last year. Year-to-date sales were $19.5 billion, up 3.9 percent from the previous period. Aviva held its No. 1 position, with 29 percent market share; American Investors Income Select Bonus was the top-selling individual product.

On the life side of the market, total third quarter sales were $129.5 million, an increase of less than 1 percent over the previous quarter and the same period in 2007. Year-to-date sales of indexed life were $381.2 million, up 9 percent from the previous period. Aviva continued to hold the No. 1 spot, while Pacific Life moved into the second spot; Old Mutual's MasterChoice IUL was the top selling IL contract. All 34 carriers in the indexed life market participated.

Says Sheryl Moore, CEO of AnnuitySpecs.com, “I can only see sales of indexed products increasing, during a time when American consumers are seeing the balances on their accounts plummet.”

Posted: Fri Feb 06, 2009 04:16 am Post Subject:

Hi Insurance Maze,

I was an insurance agent. But i just want to learn more about insurance. I have some friends that are into insurance business. And the common question is, "how can we increase our sale if people are thinking about global recession." Most people now are in doubt of the stability of huge companies. As insurance agents, how will you deal with all these things? What strategies or techniques would you recommend?

Thanks in advance.

Posted: Fri Feb 06, 2009 09:05 am Post Subject:

Hi,

As insurance agents, how will you deal with all these things?