Mercury Rising 鳯女

Politics, life, and other things that matter

Financial crisis 2.0

Posted by Charles II on June 13, 2013

Atrios linked a bit by Charles Pierce which linked Mary Williams Walsh in the NYT, with an uncharacteristically easy to understand article (based on a report by Benjamin Lawsky of NY Dept of Financial Services) on how life insurance companies are cooking their books.

Let’s suppose that you took the $100,000 mortgage on your house and sold it to your five-year old son for $1. Now you don’t have any liabilities! So you can buy that flat screen TV you always wanted.

But of course, when the bank comes around looking for their payment, your 5 year old son won’t have anything to give them.

This is what the life insurance companies have done, creating out of state shell companies to buy their liabilities in a phony “re-insurance” scheme. It looks to me to be exactly like the Enron scheme, turning a liability into an asset in an off-the-balance-sheet maneuver. According to Walsh, Lawsky says these deals were backed by “’hollow assets,’ ‘naked parental guarantees’ and ‘conditional letters of credit.’” And if the life insurers are doing this, what are other insurers doing?

These are publicly traded companies, so an investigation into whether or not this is fraud should be mounted. Walsh:

The separate analysis by SNL Financial, by contrast, was based on public regulatory filings. It did identify the life insurance companies that are the biggest users of the transactions, both in and out of New York. They include Transamerica, MetLife, Prudential, Hartford, Genworth, John Hancock, ReliaStar and Lincoln National, among others. Another insurer, Allstate, turned up in the sample even though its primary business is property and casualty, because it owns some life insurers.

Just incredible.

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2 Responses to “Financial crisis 2.0”

  1. MarkH said

    Is there anything more immediate which can be done to stop the fraud? Can anything from the new Dodd-Frank LAW be used?

    What is their incentive NOW to do this when for EVER they didn’t do it?

    • Charles II said

      I think it’s fraud, pure and simple, Mark. The SEC or the DoJ could prosecute. So, call your congresspeople.

      Dodd-Frank Title V establishes an insurance office that has a monitoring role, but it does not have regulatory power over the businessaspect of insurance. That power lies with state regulators. Still, the fact that NY State had to raise a stink shows that the insurance office is asleep.

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