Obama Tags Businesses for Failure Watch

Snoopy is not doing any "Happy Dance" while MetLife is fighting off the "Risk Tag" from the Obama regulators. MetLife is at odds with the overreaching 2010 Dodd-Frank Law providing under the Financial Stability Oversight Council. Its mission first was to identify and combat threats to the nation's financial stability as a banking law, but now it is also charged with identifying non-bank firms with ''risk tags" that warrant scrutiny too. It lets the government intrude into businesses and interfere with any impose laws as it sees fit. MetLife said in a securities filing that it will challenge its designation as a systematically important financial institutions (SIFI).

The Dodd-Frank Law succinctly describes both the Elizabeth Warren and Hillary Clinton's liberal, progressive big government over-reach plans. It is 'Big Brother" not only watching, but also knowing what's best for you. Here is what actually happened in the 2008 Mortgage Crisis, a fault of big government regulations too.

All insurers include a full range of coverage products traditionally have been under state insurance regulators. However, because of the enormous 2008 implosion of AIG, the American International Group, it was their concentration of insuring toxic home loan assets that were due to:

• under-qualified, buyers secure sub-prime mortgage loans in home real estate 
• primary mortgage lenders dealing in risky secondary mortgage resales
• unregulated bond insurance which guaranteed risky collaterallized assets  
• mortgage-bond investments collapsed as buyers default on their toxic loans
• a run-on-the-bank scenario to cash out policies to cover losses to raise cash

Historically, prior to 2008 in the U.S. less than 2% of people lost their homes to foreclosure. However, those statistics were based upon past 'qualified', not bloated 'sub-prime' mortgages numbers. So, those rates climbed far higher due to the federal government pushing Fannie Mae and Freddie Mac into the idea that everyone deserved to buy a home, regardless of their qualifications or ability to make payments. It was a sub-prime loan rationale formulated for failure, and it did too.

Meanwhile Metlife under the state insurance department rules is capitalized as required for any losses. They are unlike banking institutions with loan instruments tied to volatile systemic risks subject to panicked consumers trying to liquidate assets to raise cash according to the Dodd-Frank Law parameters. So if the Financial Stability Oversight Council were to instruct them to hold back more capital to bolster reserves, it could create a working capital shortfall of meeting competitive pricing pressures in the marketplace to cover higher cost margins by seeking to increase product pricing. It would be a further cost burden that would have questionable value-added protection in the end to the insurer and ultimately to the marketplace seeking guaranteed safety.  

This big government interference amounts to just that, interference.  So the free market has risk, that is why there are bankruptcy proceedings if a business fails. It does not require government to provide a bail-out safety net for every little boo-boo that people get. The Financial Stability Oversight Council has 10 voting members and 5 nonvoting members and will be returning a decision by early January to Metlife. Hopefully, their decision keeps all of our insurance premiums lower which will allow Metlife to breathe and take a break from one more onerous, hidden price increase. Metlife, though, has only been around since 1915, is the largest insurance company and so should have learned a little about economic volatility in the world over those years.