Friday, February 5, 2010

FDIC, TRIA and Your Fair Share of Government Assistance

It's probably a reasonable guess that you didn't notice Obama's budget cut TRIA funding, the Terrorism Risk Insurance Act.  This program provides financial assistance to insurance companies in the event they suffer catastrophic losses resulting from a terrorist event.

How much assistance?  Up to $100 billion.  Lots of details, but more or less, the insurance companies themselves face a 20% deductible before the government pays their claims.  That's crazy.  I'm no FDIC fan, but even FDIC covers depositors, not bank equity owners!  Imagine if FDIC covered bank owners for stupid loans in excess of 20% losses to their earnings??

TRIA allowed insurance companies to ignore terrorism risk.  Not very good.  I am not talking about your house.  I'm talking about power plants.  Factories.  Ports.  Of course the insurance companies lobbied hard to save TRIA, and blessed its passage at the time, but TRIA allowed insurers to say although we have the information to evaluate and reduce these risks, we don't have to.  Leave that problem to the Federal Government.  You don't want security at your power plant?  No problem.  Uncle Sam provides insurance.

I guess there's a positive side to everything: We all have electricity to our homes, so we benefited from the subsidy to the power plants, right?  Didn't you notice the lower bills??

As a tax payer, I happily say: See ya, TRIA.

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