Peter Wallison

  • 1999 0329 - AEI - Speech - The Life Insurance Industry in the Financial Services World of the 21st Century Peter Wallison to ACLI - [link]
  • ? -2009 0317 GOV Perspectives on Regulation of Systemic Risk in the Financial Services Industry
  • 2009 1127 - WSJ - Lack of Candor and the AIG Bailout: If AIG wasn't too big to fail, why did the government rescue it? And why do we need to turn the financial system upside down?, by Peter Wallison - [link]
  • 2013 - Book - Bad History, Worse Policy: How a False Narrative about the Financial Crisis led to the Dodd-Frank Act, by Peter J. Wallison 
  • 1999 0329 - AEI - Speech - The Life Insurance Industry in the Financial Services World of the 21st Century Peter Wallison to ACLI - [link]
    • Although all of you are in some sense in the business of predicting the future, attempting to predict where the life insurance industry will fit into the financial services world of the 21st century is particularly difficult.
    • Thus, the regulation of financial services is something of an “insiders’ game,” in which legislative and regulatory decisions are made by a relatively few individuals, and the shape of industry, and the position of the insurance business within it, will be determined ultimately by legislative action.
    • There are several reasons to believe that this trend will continue. Principal among them is the fact that the three industries involved—banking, insurance and securities—has each begun to offer products that are similar to, and in some cases substitutes for, the traditional products of the others.
      • Variable Annuity - One of the first of these was the variable annuity, which had elements of a standard annuity contract, but looked enough like a security to require registration with the SEC. 
      • Universal Life - Universal life policies offer investment opportunities that compete with mutual funds.
      • Money Market Funds - Through a CMA account, Merrill Lynch was able to offer a close substitute for a bank checking account, backed by a money market fund invested in short-term Treasury securities rather than federal deposit insurance.
      • Financial Guarantee Insurance - The Comptroller of the Currency has developed and partially implemented theories under which banks can offer as a banking product what used to be considered financial guarantee insurance.
      • CDS - Credit Default Swaps - And recently, there have been publicly offered structured financings in which investors can take degrees of risk that a mortgage portfolio will prepay, or that default levels on a mortgage portfolio will reach certain levels; here, a securities product has many of the elements of a financial guaranty.
    • Indeed, it is becoming clear that just about any financial product can be deconstructed and reinvented as a banking product, an insurance product or a securities product. Ultimately, the only real distinction between these products is the regulatory regime under which they are perceived or designed to fall, and since this distinction is almost entirely artificial it cannot be expected to endure for very long.
  • 2009 0721 - GOV (House) - Are Some Institutions Too Big To Fail And If So, What Should We Do About It?, Barney Frank (D-MA) - [PDF-122p, VIDEO-CSPAN-Part 1
    • (p30) - Kenny MARCHANT (R-TX). Thank you, Mr. Chairman. Mr. Wallison, I saw you on a TV program this morning, and you made a comment that I would like you to follow-up a little bit about. You said that AIG actually was not too big to fail. Am I misinterpreting that?
    • Peter WALLISON. No, that is right.
    • Mr. MARCHANT. And that there was actually no default there, no actual default on the part of AIG?
    • Mr. WALLISON. I think we were talking at that time about credit default swaps.
    • Mr. MARCHANT. Yes.
    • Mr. WALLISON. And a credit default swap is, in shorthand, like an insurance policy. You are insuring someone against a loss.
      • My point was simply that when AIG failed, it did not cause any losses to any of the people who were its counterparties. It is just exactly like you have an insurance policy on your home, and your insurer fails. You would go out and get another insurer, but unless you had already had a fire, you had not suffered a loss. And that is exactly the case with credit default swaps.
      • There is in my view a lot of misinformation around about credit default swaps, suggesting that they are very dangerous. I do not believe they are dangerous.
      • And I do not believe in the case of AIG there was any need to bail out AIG.
      • AIG had one major counterparty, and a lot of others, but the biggest one was Goldman Sachs, $12.9 billion in credit default swaps, with which AIG was protecting Goldman Sachs.
      • When it was learned that Goldman Sachs was in fact the major counterparty, the press went to them and said, ‘‘What would have happened if the government had allowed AIG to fail?’’ And Goldman Sachs said, ‘‘Nothing, we were fully protected. We had collateral from AIG. And, in addition, we had bought other protection against a possible failure by AIG. So it would not have been a problem for us.’’
      • And that I think is how we have to look at the AIG question. It was large. It was engaged. It was interconnected, as all financial institutions are always interconnected, but the possibility of loss from AIG was very small.