Another day, another massive corporate scandal:
[Doctors and lawyers discover they don't have malpractice coverage after all ...] [two of the] men had coverage from a company called Reciprocal of America. Their lives, and those of thousands of other doctors and lawyers in the South and the Midwest, have been in flux since Reciprocal cratered about two years ago amid a tangled web of business transactions that regulators describe as fraudulent...And how about that AIG (emphases mine):
... Regulators contend that Reciprocal, aided by outside business partners - including General Re - used financial gimmicks to mask serious problems and benefit insiders for more than a decade, until the company foundered...
... Reciprocal's former chief executive, Kenneth R. Patterson, and a former executive vice president, Carolyn B. Hudgins, have already pleaded guilty to federal fraud charges...
... Executives involved in the dizzying matrix of offshore accounts, secret transactions and financial sleight of hand that defined Reciprocal's business often struck deals in luxurious surroundings, even as Reciprocal itself was falling apart, according to the lawsuits. Executives, the lawsuits say, sometimes convened at fancy resorts and on other occasions cemented deals while cruising Chesapeake Bay aboard the Scottish Lass, a yacht owned by a Reciprocal executive. Reciprocal managers referred to the summer boating excursions as 'Chesapeake Audits,' according to one lawsuit.
Mar 17th 2005 | NEW YORKOkay, so we have Enron and its ilk, AIG and its brethren, the SEC knee-capped by Bush, and a stench of corruption oozing about American capitalism. Not to mention the problem with index funds. Which is why this NYT Magazine article is so timely:
From The Economist print edition
Regicide in the insurance industry
FEW leaders of big American companies dominated their firms as completely as Maurice “Hank” Greenberg; few stood so large in their industry. It is often said, only half in jest, that American International Group (AIG) had a flat management structure, with 90,000 employees all reporting to Mr Greenberg...
... The most commonly held theory is that Mr Greenberg was laid low by transactions he personally arranged in 2000 with General Re, a reinsurer now owned by Warren Buffett's Berkshire Hathaway, that had the appearance of boosting AIG's reserves without actually doing so...
... This is not AIG's only problem. Four former employees have pleaded guilty in a bid-rigging case centred on Marsh & McLennan, the world's largest insurance broker. (Marsh's chief executive, Jeffrey Greenberg, Hank's son and formerly his chosen successor at AIG, had to resign last October. Hank's other son, Evan, also once his designated successor, is chief executive of ACE, another large insurer being investigated in the bid-rigging scandal.) In the past two years, AIG has reached settlements, without admitting guilt, with the Securities and Exchange Commission and the Department of Justice over the sale of insurance policies to PNC Financial, a bank, and Brightpoint, a technology company. The regulators had said that these masked financial performance rather than providing insurance.
Regulators are also scrutinising Mr Greenberg's attempts to put pressure on specialists on the floor of the New York Stock Exchange (NYSE) to support AIG's share price in 2001, while it was consummating the acquisition, paid for with stock, of American General. Mr Greenberg's efforts included lobbying the NYSE's then chief executive, Richard Grasso. At the time, Mr Greenberg sat on the compensation committee of the NYSE. Mr Grasso's pay is the subject of its own investigation...
... During most of Mr Greenberg's tenure, AIG was the rare insurer that managed to combine fast growth with apparently low risk
The question now is whether AIG is finally losing its aura of impregnability. During most of Mr Greenberg's tenure, AIG was the rare insurer that managed to combine fast growth with apparently low risk. Wall Street analysts fell over each other to praise the company and it was one of the very few to enjoy top credit ratings from all the main agencies. This enthusiasm sprang partly from admiration for AIG's remarkable performance, but there was a darker side as well. Mr Greenberg was infamous for browbeating not only analysts who questioned AIG, but their bosses too. One analyst who told The Economist that AIG's shares were over-valued relative to its competitors received an unscheduled visit from the company's lawyers, who brought a pre-written retraction for him to sign (he declined). The company parcelled out its legal work among all the top law firms. This created a conflict of interest for any such firm representing anyone in legal action against AIG...
... With the agencies pondering and regulators probing, there may be more reason for analysts, investors and others to ask questions about the details of AIG's business. Although AIG has responded to criticism by becoming more open in the past two years, its operations remain fairly murky... because AIG pools its results from foreign operations, it is difficult to understand precisely how, and where, it makes money...
... AIG's opaque compensation scheme for senior managers, administered through a Panamanian corporation named Starr International, will ensure some loyalty. There are, it is said, several billionaires besides Mr Greenberg in its top ranks and others worth hundreds of millions. The scheme has some odd quirks, in as much as Starr International is controlled by Mr Greenberg and it is not clear that he must surrender this role...
... A law professor at the University of Chicago, [Richard A.] Epstein was notorious in legal circles for his thesis that many of the laws underpinning the modern welfare state are unconstitutional. Thomas tried to assure Biden that he was interested in ideas like Epstein's only as a matter of ''political theory'' and that he would not actually implement them as a Supreme Court justice. Biden, apparently unpersuaded, picked up a copy of Epstein's 1985 book, ''Takings: Private Property and the Power of Eminent Domain,'' and theatrically waved it in the air...Which brings one back to the Land of Rand. Ayn Rand, the novelist and philosopher was the public face of what we now call 'Libertarianism' (she called it Objectivism); Rand's most famous living disciple is Alan Greenspan. Rand wrote like a journeyman romance or science fiction novelist; like most science fiction novels her stories are remarkable for the utter absence of children and the disabled. In Rand's world the "market" rewards the "fit" and punishes the "unfit", and good is what the market defines (the roaring sound you hear is the spinning of Charles Darwin's body). Rand, Lenin, and Marx seem to share both atheism and a fetish for recreating God and Devil as Market and State -- though the assignments varied.
... As Epstein sees it, all individuals have certain inherent rights and liberties, including ''economic'' liberties, like the right to property and, more crucially, the right to part with it only voluntarily. These rights are violated any time an individual is deprived of his property without compensation -- when it is stolen, for example, but also when it is subjected to governmental regulation that reduces its value or when a government fails to provide greater security in exchange for the property it seizes. In Epstein's view, these libertarian freedoms are not only defensible as a matter of political philosophy but are also protected by the United States Constitution. Any government that violates them is, by his lights, repressive. One such government, in Epstein's worldview, is our government. When Epstein gazes across America, he sees a nation in the chains of minimum-wage laws and zoning regulations. His theory calls for the country to be deregulated in a manner not seen since before Franklin D. Roosevelt's New Deal. [jf: would Epstein argue that the ancestors of slave owners are owed reparations?]
Rand's philosophy can best be summarized in two words "caveat emptor". Let the buyer beware. In an Objectivist world there are few if any rules, save those that arise from a mystical market that's magically sustained by ... ummm... errr ....
Roughly (very) speaking then, Randian Libertarianism is a cross between 'God as Market' and early 20th century social darwinism. The Bush party is likewise very committed to social darwinism with a Calvinist spin, and has a strong 'God as Market' wing (the christian conservatives belong to the rather similar 'Market as the Will of God' coalition). From a different direction we have silicon valley bazillionaires who are often fond fans of Rand (her books are a paeon to their wonderfulness). Putting all of that together, and given the news of the past five years, it's fair to say that the US is becoming the Land of Rand.
I don't think this will work very well for the weak.
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