Life insurance companies are abusing a transaction to inflate their books by billions of dollars, which regulators say could lead to a massive taxpayer bailout.
In New York alone, firms relied on a set of complex—but allegedly misleading—transactions to make their balance sheets appear to be $48 billion stronger than they actually are, according to a report issued Tuesday by Benjamin Lawsky, New York’s superintendent of financial services revealed.
Lawsky’s team followed the paper trail for one year and found that companies in New York were setting up shell companies in other states with looser regulations, claiming that these companies were selling them reinsurance. Most of the insurance companies were artificially increasing their risk-based capital ratios, an important measurement of solvency that was instituted after a series of life-insurance failures and near misses in the 1980s.
Lawsky told The New York Times that he was struck by similarities between what the life insurers were doing now and the issuing of structured mortgage securities in the run-up to the financial crisis of 2008.
Regulators are concerned that the activity isn’t isolated to New York alone. Gov. Andrew Cuomo is urging other states, as well as the federal government, to conduct similar investigations. - Read more at The New York Times
AIG UNDER FIRE (AGAIN) Big day for Lawksy. American International Group Financial Products, the same derivatives unit that nearly took down the economy in 2008, is again facing scrutiny after New York’s superintendent for financial services found that it may have “failed to properly measure and manage risk, misled supervisors and investors, and lacked appropriate checks to limit outsized risk-taking,” The Huffington Post's Shahien Nasiripour reports. - Read more at The Huffington Post
SENATE IMMIGRATION REFORM BILL GAINS MOMENTUM The bipartisan “Gang of Eight’s” Immigration reform legislation passed a significant hurdle Tuesday when the upper chamber voted overwhelmingly 82 to 15 to begin consideration of the bill.
The measure still faces a tough battle in the Senate, where many of the Republicans who voted “yes” on Tuesday said they would not support it in the final vote unless it contains stronger border security language. - Read more at The Hill
DYING WITH DEBT More and more older Americans are taking on debt. The Fiscal Times’ Mark Thoma writes, “a study earlier this year from the Employee Benefit Research Institute found that the percentage of households with credit card debt headed by someone age 75 or older doubled from11 percent in 1998 to 22 percent in 2010. And a 2011 University of Michigan Law School study found that those 65 and older are the fastest-growing segment of the U.S. population filing for bankruptcy and they carry 50 percent more credit card debt than younger debtors.” - Read more at The Fiscal Times
BLOOMBERG PUNISHES SENATE DEMS WHO OPPOSED GUN CONTROL New York City Mayor Michael Bloomberg is urging hundreds of the biggest Democratic donors in New York City not to donate money to the four Democratic senators who helped block gun control legislation in April that would have strengthened background checks on gun purchases. New York is the most essential state for the Democrat’s fund-raising efforts. Last year, the four defectors, Mark Pryor of Arkansas, Max Baucus of Montana, Mark Begich of Alaska and Heidi Heitkamp of North Dakota, raised $2.2 million from New Yorkers. - Read more at The New York Times
ACLU SUES OBAMA FOR SNOOPING The American Civil Liberties Union sued the Obama administration on Tuesday over its “dragnet” collection of Americans’ phone records, claiming that the once-secret program, which was exposed last week by a former Booz Allen Hamilton contractor Edward Snowden — is illegal and asking a judge to stop it. - See the complaint here