Jerry: thanks for the response, which helps me put the thing in perspective. Your argument meshes with what I am now inclined to think is a bogus insurance crisis. I just did a little web-surfing: virtually all of the reporting on this issue describes the massive payouts that will have to be made (on the order of $30-50 billion); but there is suspiciously little reporting on the industry's ability to accommodate that kind of a hit. I managed to find one site which reported that while some insurers are undercapitalized and will be in some trouble, the industry as a whole probably has enough reserves to take the hit and survive. Premiums might indeed have to rise; but an orthodox economist could argue (with some justification) that higher premiums merely reflect the true cost of providing insurance in the light of new (post-Sept. 11th) information about the risk of terrorism. THere's no reason why insurance companies in London, Paris, Frankfurt and Milan wouldn't have to take account of this same information and modify their rates accordingly. If US insurers raise their premiums I'd be surprised if non-US companies didn't follow suit. As it is, it looks like Lloyds is one of those undercapitalized insurers (is anyone surprised?). So I think this IS about socializing losses: there seems to be no good reason to bail out the insurers (except possibly by offering loan guarantees for undercapitalized companies) other than to shift the cost of the tragedy off of capital and onto workers. Interesting how this ties in with the question I raised for discussion about how the financial sector serves to concentrate income and wealth: your remarks showed one (for me) unexpected way this could play out. All the best, Gary
This archive was generated by hypermail 2b30 : Fri Nov 02 2001 - 00:00:04 EST