A View from the Press Box

Could the $700 billion bailout program being rushed through Congress not only fail to solve the problem being targeted–which, in case you forgot, is the clogging of credit markets–but actually do more harm than good? That’s the frightening scenario raised by Weiss Research in a research paper submitted to Washington lawmakers on Friday.

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Today I moderated a webinar about the fallout from the American International Group debacle featuring three major insurers–one of which was AIG!–put on by the Risk and Insurance Management Society. With AIG in the spotlight and the sharks smelling blood in the water, the pressure was on the AIG rep to reassure nervous buyers that the carrier is sound, safe and secure despite the hub-bub over the $85 billion federal bailout of its corporate parent.

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I can’t help but wonder how many of those who back an optional federal charter for insurers and producers might be experiencing the slightest bit of doubt after the gut-churning threats to our economy being debated in Washington this week. The fallout from the subprime debacle–which nearly destroyed AIG (and might yet do so)–was very much on my mind as I moderated a debate today on state versus federal oversight.

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In my Sept. 3 blog entry, I ran a column by my fellow editor at NU’s life and health weekly, Steve Piontek, hammering insurance regulators in general, and the NAIC in particular, for allowing a revolving door to keep swinging between the industry and the insurance departments overseeing the business. I agreed with Steve’s take, noting that I couldn’t have said it better myself. But this week I published a counterpoint by Caroline Scott, a former general counsel of the National Association of Insurance Commissioners. Read on and let me know what you think.

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It’s too bad that Sandy Praeger, president of the National Association of Insurance Commissioners, had to bow out of NU’s taping of “The Great Debate” over federal versus state regulation, due to scheduling conflicts in the midst of dealing with the fallout from last week’s crisis with AIG. But luckily, we were able to get an able replacement from the National Conference of Insurance Legislators–its secretary, State Rep. George Keiser–to debate American Insurance Association President Marc Racicot. The debate is available online free of charge, starting this Wednesday, Sept. 24, from 11 a.m.-to-Noon EST. Read on for details.

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Are Hank Greenberg and I the only ones chagrined about Uncle Sam actually owning AIG as part of its bailout package to keep the country’s biggest insurance conglomerate afloat? Was it necessary to demand a nearly 80 percent equity interest in the troubled company in return for the Fed’s $85 billion line of credit, and could the terms of the deal end up hurting AIG–and taxpayers–in the long run?

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So, AIG got its bailout from Uncle Sam. What happens now? Assets will be sold to repay the federal loan, but can enough cash be generated over the next 24 months to get the job done, during what in effect will be a fire sale? And will AIG be able to reassure nervous risk managers whose commercial insurance policies with the carrier are up for renewal on Jan. 1?

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Whenever a financial behemoth totters on the brink of bankruptcy, government officials start chanting the mantra, “It’s too big to be allowed to fail.” Is that the case with American International Group, collapsing beneath the crushing weight of subprime mortgage loans gone bad? AIG’s former top dog, Hank Greenberg, certainly thinks so. But the big question is, will anyone be held accountable for getting AIG into this mess in the first place?

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Did you ever think you would see the day when American International Group was in such dire financial trouble that it would be forced to beg for a federal bailout to maintain its rating and perhaps its very solvency? That’s the unfortunate situation that has arisen today, with millions of investors and policyholders holding their breath as Doomsday on Wall Street unfolds.

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Democrats might just win Florida’s crucial electoral votes if they keep campaigning hard for a national catastrophe insurance fund, an idea opposed by Republicans. Democratic candidate Barack Obama made his pitch for a cat fund in an op-ed today in the St. Petersburg Times.

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