Who'd have thought, when the month of October began, that we'd suddenly be in the worst economic shape in the United States since the Great Depression?
Who'd have thought the government would be "bailing out" or "rescuing" (select the politically appropriate term) the likes of Freddie Mac and Fannie Mae and injecting tidy sums of taxpayer money into banks and other players in the financial services sector?
Who'd have thought the sages of American finance, driven by greed and the need to justify the obscene dollars they're being paid, would allow things to get so out of hand, to the point of recklessness and beyond. Even poor old Alan Greenspan looked bewildered in recent Congressional testimony.
On the insurance side, the earth moved with the continuing and breathtaking story of the American International Group, now virtually nationalized and on the brink of a fire sale, and the prospect of the federal government considering buying equity stakes in still other insurers, or brokering marriages among big players (see MetLife, the Pru, Hartford Financial, et. al.). This amidst charges that, as The Wall Street Journal reported, this may be "a sign of how the government's $700 billion rescue program could turn into a piggy bank for a range of beleaguered industries."
DISMANTLING THE GIANT
For the insurance business, the developments at AIG are the most disturbing.
I was raised and still live in the New York area and am witnessing as I write the unendurable tearing apart of The House That Ruth Built. Just as unimaginable to me is the deconstruction of The House That Greenberg Built, the result of which likely will be a stripped-down, sold-off mini-version of the once-proud giant AIG, the lifetime handiwork of the legendary Maurice, with the very survival of the enterprise hanging in the balance.
Not that it hasn't earned it and not that Hank Greenberg doesn't share some of the fault, so closely to his chest did he hold the inner workings of the company to the detriment of those who followed him. In his wake, Henry Paulsen and Ben Bernanke, we are told, were petrified to let the company fail in fear that such an event would cause a global financial collapse, so far and so deep and so apparently inexplicably the AIG tentacles extended.
So what has the insurance business learned from all of this? Are the days of wine and roses and bloated bonuses and reckless underwriting and foolish investment truly over? Can it recover and learn from the excesses of the past four years?
Beyond this, remember, were the investigations of the now-forgotten Eliot Spitzer and the broker compensation scandals which brought down Hank Greenberg and his son Jeffrey not so long ago.
Can an industry too-long and too-easily accustomed to horrendous boom-and-bust cycles on the underwriting side and occasional market slides and bubble bursts on the investment side accommodate to the ultimate horror of what's happening now?
I'd like to say lessons have been learned but, based on past history, I'm not so sure.
THOMAS J. SLATTERY, a writer on industry affairs, is managing director of Slattery-Esterkamp Communications, Baldwin, N.Y.
December 1, 2008
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