It was in Britain that insurance began first in shipping. Voyages to the Indies were long and fraught with danger. Not all the ships that sailed returned safely or with undamaged cargo of value. People of substance formed pools of risk and were substantially rewarded by the law of averages and reversion to the mean. Some unfortunate risk taking members of the insuring pool suffered devastating losses and were ruined. Later life insurance was available for individuals and actuarial tables were used to calculate premiums. The Scottish Widows pension fund for the wives of Presbyterian ministers set up the first statistics based pension insurance firm which is still one of the large financial behemoths today, as is the Lloyd’s shipping insurance partnership.
Sometime in the early interim era, it was permissible for anyone to buy life insurance on any unrelated individual. As is not unexpected in such an “ethical” land like Great Britain, which pioneered slavery, colonization, narcotics peddling and genocide, some financially savvy individuals used insurance as a means of large and rapid profits. Such persons would take out large life insurance policies on someone and then hire an assassin to murder the insured and collect a bonanza. The rapidly rising losses of insurance companies led them to appeal to the king and parliament to prohibit any unrelated individual from taking out life insurance policies on individuals whose death would not cause them economic damage. Such a law was soon passed. A similar thing happened with the states of Delaware and South Dakota which repealed the laws of usury and credit card interest rate ceilings in the Carter Reagan Volcker era to obtain credit card billing centers, oblivious of how it would shaft all American consumers. In both cases, governments did what was good for large financial companies with no concern about the common citizen, a pattern which persists today in bailing out banks and abandoning the homeowners.
The general public in the US is unaware that Lehman and Bear Stearns while deserving of demise because of their high leverage, dependence of daily short term funding for their long term, high risk bets, were accelerated to failure by many smart speculators who bought credit default swaps on these companies (a form of life insurance on the company’s debt) without owning any of it, and then shorted the company’s stock which they had borrowed. This put them in a vicious downward cycle as those companies could not obtain short term financing from unwilling lenders with doubts about their survivability. The greedy officers of AIG’s credit default writing London subsidiary, earlier had kept on writing such insurance at unrealistically low and risky premiums, without sequestered and segregated cash reserves.
AIG subsidiary’s officers collected premiums each year without assessing future risk and could report huge profits each year which allowed them to claim millions in year end bonuses, while the company eventually faced nearly 200billion dollars liability a few years later. Once again Paulson dumped the liability on the government and ultimately on the taxpayer to fund AIG, salvage his old firm Goldman Sachs, while driving its competitors Lehman, Bear Stearns and Merrill Lynch out of business. He also frightened the Congress and then threatened a meltdown. The Congress pretended to first vote against the bailout and then reversed itself in a farce which only fooled the stupid American public. They and the president whose only interest is in an open spigot for campaign finance, presidential library donations and obscene speaker fees, used the 700 billion dollars to recapitalize the big banks, guarantee their debts and set the stage for future losses for the taxpayer.
Paulson left, but his co-conspirators Geithner, Summers and Bernanke remained as consiglieris to the new incoming boss. Far from regulating the big banks, designing new and effective regulations or reducing them in size so that they cease threatening the economy by being too big to be allowed to fail , the bank moles in the administration allowed them to become even bigger by allowing them to take over Wachovia, Countrywide and others with huge subsidies and guarantees from the government to be footed by the taxpayer.
Now gold-digging hacks are proposing to buy insurance policies from old geezers and lumping them into securities for a huge fee to be sold to investors. Rumor has it that the Cosa Nostra Finance Subsidiary has shown interest in buying these securities but only if Geithner’s latest public swindle, the Public Private Investment Trust (PPIT) will finance the purchase with a 90% non-recourse loan and guarantees them immunity from prosecution. The Cosa Nostra F–---Company has assured the government that the PPIT investment is likely to be highly profitable as they have a collection agency that can expedite the events which will lead to immediate maturity and termination of the insured. It seems like de ja vu or re-inventing the old insurance death trap, deserving of a IgNobel prize in Economics.
The final example of how the old dirty game is the newest mantra of the audacity salesman selling a hoax. Obama keeps shifting his stance on healthcare while talking a good game. If he abandons the public option and mandates health insurance for all, what he is doing is legally and forcibly delivering additional 50 million (uninsured) sacrificial lambs to insurance company wolves. They can still cherry pick, keep on raising rates and fatten their profits by collusion, price fixing and absence of competition. If he keeps a public option and promises no deficit finance or government financial support, the insurance companies will cherry pick the healthy young and dump the costly sick ones and the high utilizing insured, on to the public option forcing it to have premiums higher than those of the private insurers, if it is not to run deficits or obtain government subsidies. This makes Obama’s healthcare reform an audacious hoax.
We need a non-profit single payer national health insurance with no overheads for advertizing, low 3% overheads (like Medicare, Medicaid &VA) for administrative expenses, an upper pay limit of 185,000 dollars for the highest administrators, and limitation of treatments based on effectiveness, quality of life and its prolongation and possibly even an upper limit in the number of dollars spent per person. It may not be politically possible to institute such a drastic change in one step. We have to begin with a competing public option with a small seeding subsidy for the uninsured. It can be obtained by tax surcharges on the rich high earners and taxing the gold plated employer paid health plans. To reduce the rising costs of healthcare, later on some rationing and premium price controls (like PUCs and regulated utilities) may be necessary.
While I await the ultimate outcome of the audacious hoax, the odds are that while one can fool some people at all times and all people at some times, one can fool the large majority of all American people at all times, when it comes to elections or their economic interest.