I can’t remember for a fact, but it seems to me that I’ve already used the mythic image of Sisyphus to describe the life insurance industry’s seemingly doomed challenge of getting Congress to approve an optional federal charter.  Just when the king of Corinth gets the stone almost to the top of the hill, down it goes. 

So, not to repeat ourselves, let’s turn to another myth to describe where the industry is now in what has come to be a decade-long quest.  My Webster’s gives this description of Tantalus: “a son of Zeus, doomed in the lower world to stand in water that always recedes when he tries to drink it and under branches of fruit that always remain just out of reach.”

Needless to say this is where the word tantalizing comes from.  And tantalizing is a good word for how the life business (or at least many of its companies) sees the prospect of an optional federal charter.  We’re not really sure how it’s going to work, but we know we’re going to like it. 

Actually, not knowing how it’s going to work may be part of the attraction for these companies, since they feel they are quite familiar with what they perceive as the clunkiness and annoyance of state insurance regulation.

There’s another factor going on here.  In two words: Regulatory envy. 

Life insurers are such a well-behaved bunch, but among those businesses that are financial colossi (banks, mutual funds, life insurers), they get the least respect.  This, of course, brings to mind another mythic figure: Rodney Dangerfield.

Life insurers look at banks, for instance, and are just green over the fact that banks can pick their charter and thus choose to be either federally or state regulated.  And if they choose to be federally regulated, boy oh boy, what a bag of goodies that brings with it.  Banks don’t have to be well-behaved, always minding their P’s & Q’s.  Banks can do all sorts of things that life insurers in their wildest dreams wouldn’t think of doing and their regulators will usually cheer them on or, at the very least, bite their tongues. 

Life just isn’t fair when you don’t have a federal regulator in your court.

So, what happens when-once again–the water seems to be within the reach of Tantalus?  What else?  The New York Times writes an editorial saying in effect that drinking the water is the worst thing that could happen anyway for poor old Tant and everybody else.

And so on May 21 the Times blasted the OFC bill introduced by Rep. Melissa Bean, D-Ill., and Rep. Ed Royce, R-Cal., saying, “If the bill were enacted, the race to the regulatory depths would continue, and the nation would be headed in exactly the wrong regulatory direction.”

Needless to say, those officials who have been doing the heavy lifting on this issue for years reacted with fury.  The Times “has it wrong,” said the American Council of Life Insurers.  The “editorial is misleading at best,” said a spokesman for the Financial Services Roundtable.  

Pretty strong words for organizations that usually step more gingerly when criticizing the newspaper of record.  

Then, providentially it would seem, the very next day Rep. Paul Kanjorski, D-Pa., introduced his own bill that creates an Office of Insurance Information in the Treasury Department. The OII is often seen as a precursor to an OFC, a foot in the door of federal regulation, so to speak.  Life insurance officials applauded.

This bad news-good news rhythm should now be second nature to the life industry in regard to an OFC. And as every setback makes the prospect of success so much more tantalizing, the water seems more and more like nectar and the fruit positively ambrosial.

The federal government has completed its stress tests of the nation’s 19 largest banks and bank-like institutions and in this era of trillions of dollars, there is good news.  The amount of capital deemed to be needed by these banks is a mere $75 billion. 

I don’t know about you, but after what we’ve become accustomed to, $75 billion seems to be in the realm of Monopoly money.  Or perhaps, it’s that all money has entered the realm of Monopoly money.

In any case, almost half of that $75 billion (or $33.9 billion) is said to be needed by Bank of America.  Wells Fargo is said to need $13.7 billion, while the only other institution in the 11-digit category is GMAC, which would need $11.5 billion.

The one insurer in this group of 19, Met Life, apparently does not need to raise more capital.  That’s good news for the insurance industry (which certainly can use some).

The results of these stress tests were judiciously leaked over a week’s time, which greatly relieved any stress the stock market had been feeling in this regard.  So, BofA needs $34 billion?  Man, that’s nothing, chump change.

The announcement of the results of the tests set off a scramble among those banks deemed needy to raise the required capital.  In lickety-split fashion, Morgan Stanley and Wells Fargo raised billions within hours. 

Just how stressful these stress tests actually were is a good question.  A lot of the pressure was on the government, which had to walk a fine line between declaring a lot of the banks zombies, which would have freaked out the market, and letting them all off the hook, which would have looked like a whitewash job.  The market seems to have been satisfied that the administration walked that line the way it was supposed to.

The banks also were apparently able to negotiate with the government on certain parameters of stress measurement.  It does so much to relieve stress when you can call at least some of the shots, doesn’t it?

These tests were done to see how much additional capital might be needed under a worst case scenario.  The actual amount of losses that would be sustained is much larger, totaling some $600 billion.

What is somewhat scary is that mortgages and real estate loans, which caused the first tsunami of losses, are not the biggest problems for some of these banks.  A couple at least are on the hook for huge potential losses in credit cards, which are just starting to get into dangerous waters.

Whatever the results of these tests, one thing is fairly clear to me: Banks, no matter what size, need to be reined in.  They’ve gotten way too big, way too wayward and way too brazen.  And all of this was under federal regulation and oversight! 

It seems to me that when you get to a certain age you lose faith in panaceas.  Federal regulation is not the panacea a lot of folks would like to believe it is or could be. 

Those who are looking at tougher federal regulation as a panacea (now that the horse is out of the barn and is dragging our financial system with it) are chasing some kind of pipe dream. 

Part of the problem has been that federal regulators, as I’ve pointed out in the past, have been more cheerleaders for their wards than overseers.  They enabled the unbridled growth and inordinate amount of risk-taking that brought the system perilously close to collapsing.  Has that really changed?

Did I mention before that the one insurer in this group of 19 was judged not to need more capital?  Yes, I did.  

It makes me think that any federal regulator or agency needs to get some stiff training from their state insurance counterparts so that they can recognize that regulation means strict oversight with regard to solvency and leveraging, not thrusting pom-poms as forcefully as you can, while shouting, “Give me a B, give me an A, an N, a K!  Go banks!”

I was more than a little surprised to see Met Life weighing in on the side of the Securities and Exchange Commission regarding the SEC’s move with Rule 151A to regulate some indexed annuities as securities.

Maybe I shouldn’t have been.  But truth is I can’t recall one instance in the long life of the Peanuts strip where Snoopy was shown biting someone.  This move of Met’s strikes me as being characteristic of quite another animal.  Bam! Before you know it the thing’s got its pointy sharp little teeth in your ankle and won’t let go.

Met’s amicus brief, wherein it supported the SEC, said “federal regulation of indexed annuities as securities is an appropriate exercise of the SEC’s rulemaking authority.”

Met notes in the brief that it does not sell equity indexed annuities, but does sell variable annuities, however.  Not selling EIAs, of course, gives it the perfect right to opine on their regulation, this being America after all.

Some investors may confuse EIAs with VAs, Met says.  ”Inadequate regulation of indexed annuities thus tarnishes the reputation of other annuity issuers, including MetLife and the insurance industry as a whole.” 

I don’t want to leave the impression that Met is being negative, however.  Further down in the brief it becomes clear that Met’s argument for SEC oversight of EIAs is really based on a feeling of sharing.  That is to say, since variable annuities are in part regulated by the SEC, then it is just not fair to deprive index annuities of enjoying the same privilege.

In other words, since my ox has been gored, so should yours.

I don’t know how long Met Life is wedded to Snoopy as its representative icon.  But if it ever wants to consider some other Peanuts characters, here are a couple of suggestions coming out of this amicus brief.

Good old Charlie Brown himself might be suitable since, in my opinion, Met really dropped the ball here.

But the character that probably best reflects this bit of opportunistic slamming is, of course, Lucy.  A far cry from Mother Met of days gone by, to be sure, but then nothing’s what it used to be.