Wednesday, September 17, 2008

AIG and Regulation Versus Deregulation

As I posted earlier today, I believe the feds did the right thing in making sure AIG did not fall.

But as the dust settles, that takes us to another big question--the question of more or less regulation generally and, more specifically for readers here, more or less regulation for the health insurance industry.

The first thing to note is that the existing state regulation of the insurance industry generally worked well in AIG's case. AIG's mainstream insurance business is in great shape.

AIG's problems were in its bond wrap business--the financial side. That said, those were financial products offered by a sub of an insurance giant and the regulators blew it in letting them so leverage the company where they essentially guaranteed the housing bubble. My 20-something son passed on buying his first house in 2004 and 2005 because he was smart enough to smell a bubble--but the AIG guys weren't and that is unforgivable.

The nation's perspective on the regulation of business will now very correctly focus on getting our financial regulatory systems back to what they should have been. Even Palin and McCain are calling for the regulators to do their jobs!

This is also a reminder that there needs to be a very even balance between government regulation and private enterprise. A balance that has clearly gone too far in favor of greed.

John McCain has called for a more vibrant and more unregulated health insurance market as a core solution to our health care problems. Whether or not he is elected, I expect those ideas are now incredibly out of step with voters more than wounded in recent days by the unfettered market.

I also call your attention to Joe Paduda's post today, "Implications of the AIG bailout"
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