Treasury secretary calls for insurance law reform

WASHINGTON—Treasury Secretary Henry Paulson is using the near-bankruptcy of American International Group Inc. as a call for insurance regulatory reform.

Appearing on NBC's "Meet the Press" on Sunday morning, Mr. Paulson said to have allowed AIG the declare bankruptcy would have been "unthinkable," adding that the company was "a few hours" from doing so.

"What the government did was come in in a senior position, senior to the senior debt, well ahead of the shareholders, with…an $85 billion funding facility to allow the government to liquidate this company in a way" that avoided "a real catastrophe in our financial markets," said Mr. Paulson, according to a transcript posted on MSNBC's Web site.

"AIG was so interconnected: it touched money market funds, it touched individual savings," he said. "This is a classic example." He said the insurance operations were regulated by 50 different insurance regulators."Something like this, in my judgment, should never have happened. But again, we did this to protect the taxpayer…and it's something we're going to need to deal with in the future in terms of a regulatory system."

Mr. Paulson noted that he had issued a regulatory reform blueprint in March "because we have a patchwork regulatory system that is outdated." One section of the blueprint called for allowing insurers to choose an optional federal charter rather than continue to be regulated by states.

But Mr. Paulson added that regulatory reform couldn't be dealt with in a week, which is the administration’s timetable for gaining congressional approval of the bailout. "We need this legislation in a week because we have a problem in our capital markets that's urgent to deal with," he said. "And we can deal with it when we get the legislation from Congress."
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