Isn't private insurance a fractional-reserve system too aka Ponzi scheme?

[socialize_me]

Private insurance has existed for centuries and we all think it's good to have--even Ron Paul; however, my question is this: How can you be against fractional-reserve banking, extensive leverage and debt, or Ponzi schemes, yet not be anti-private insurance as it seems to encompass all of those features??

Take for instance a "War of the Worlds" scenario where suddenly all of the cars on Earth stop working and you have thousand car pile ups across interstates throughout America due to some freak solar phenomenon. The chances of this are very slim, but so are the chances that everyone will simultaneously take their money out of the banks and bring the fractional-reserve banking system down. Banks are enemies of Ron Paul crusaders, yet private insurance is one of the seven wonders of the free market world in our minds. It's great that the free market has come up with such a system--a system that would collapse if an irregularity occurred where everyone insured would not get the insurance promised to them in the insurance contracts and premium payments.

Basically if enough people got in car accidents, insurance companies would fold. The way insurance companies maintain solvency and profitability is no different from how banks do it. Banks are able to make loans to people based on how much in deposits they have. If they loan out money yet all the depositors come back asking for their money, the system collapses. If only a quarter of the people insured by, say, GEICO, were in an accident, the system would collapse long before most would even get coverage. So in a way, the fractional-reserve system is more stable than the private insurance system, is it not? Because in order to insure one accident, you need more than just one other person paying their premiums. You need several more people paying into the system that aren't getting in a car accident to cover just one accident in order for the system to continue.

So, how can you not be hypocritical when you crusade against the banks yet don't waste any breath on private insurance? This is, after all, an entity created by the free market. Could it be that the human/government invention of fractional-reserve banking be a better system than private, free market insurance?? Because again, you would need a good number of depositors demanding their money from a bank. With insurance, you would need only minority of the policyholders to get in an accident and someone like GEICO would have problems.

 

[Conza88]

Private insurance has existed for centuries and we all think it's good to have--even Ron Paul; however, my question is this: How can you be against fractional-reserve banking, extensive leverage and debt, or Ponzi schemes, yet not be anti-private insurance as it seems to encompass all of those features??

Lmao, because it doesn't encompase all "those" features. Whatever the ---- "those" features are. Care to elaborate in point form?

Take for instance a "War of the Worlds" scenario where suddenly all of the cars on Earth stop working and you have thousand car pile ups across interstates throughout America due to some freak solar phenomenon. The chances of this are very slim, but so are the chances that everyone will simultaneously take their money out of the banks and bring the fractional-reserve banking system down.

Insurance companies plan for once in a several hundred year storms. I know. I've worked in the industry. There are also RE-insurers, companies who INSURE the INSURANCE companies. Fractional reserve banking is fraud. You cannot equate the two, to do so is fallicious.

Banks are enemies of Ron Paul crusaders, yet private insurance is one of the seven wonders of the free market world in our minds. It's great that the free market has come up with such a system--a system that would collapse if an irregularity occurred where everyone insured would not get the insurance promised to them in the insurance contracts and premium payments.

No, banks are not. Central banks are. Banks are able to loan their own money out, their capital at interest, to people who use the money, at credit, to increase productivity and then pay the money back.

WTF are you talking about. If the insurance industry is a free market and left to its own devices, if it fails - then it fails. No-one insures with that company again. You know, its kind of in the interest of private companies NOT TO FAIL. Can't say the same of FRB and government institutions.

Basically if enough people got in car accidents, insurance companies would fold. The way insurance companies maintain solvency and profitability is no different from how banks do it. Banks are able to make loans to people based on how much in deposits they have. If they loan out money yet all the depositors come back asking for their money, the system collapses. If only a quarter of the people insured by, say, GEICO, were in an accident, the system would collapse long before most would even get coverage. So in a way, the fractional-reserve system is more stable than the private insurance system, is it not?

No. FRB = fraud. Private Insurance = built on capital.

Because in order to insure one accident, you need more than just one other person paying their premiums. You need several more people paying into the system that aren't getting in a car accident to cover just one accident in order for the system to continue.

No you don't. That persons premiums get raised, and over time - they pay it back themselves. You don't NEED it, it just seems that way. The insurance company uses their own money to insure, see how much they have to withhold etc.

So, how can you not be hypocritical when you crusade against the banks yet don't waste any breath on private insurance? This is, after all, an entity created by the free market. Could it be that the human/government invention of fractional-reserve banking be a better system than private, free market insurance??

No. So stfu.

 

[socialize_me]

Lmao, because it doesn't encompase all "those" features. Whatever the ---- "those" features are. Care to elaborate in point form?

Lmao, I didn't realize I needed to. I thought this was pretty much common sense thus I omitted it, but apparently it needs further explanation for you...

It's a type of Ponzi scheme where the first people who get hurt benefit, but the last ones who get injured get nothing--as would happen if something extra-ordinary occurred.

With insurance, I can collect millions of dollars in settlement even if the policy holder only paid a month's worth of premiums. Isn't this how Social Security first started?? The first recipient of the first Social Security check paid something like $20 or so into the system, yet took out $20,000 in benefits over her lifetime. That's a Ponzi scheme, but yet insurance wouldn't be? HAH!

And it is fractional-reserve. It's banking (no pun intended) on the fact that not EVERYONE will get hurt/die at the same time, just as in the fractional reserve system banks bank on the fact that not all depositors will withdraw their money at the same time. See the similarity? Probably not considering who I'm explaining this to.

And as far as leverage goes, they do extensive leverage to make further profit. They try to acquire more and more people into the system hoping that they won't get hurt and can pay for current claims being processed, while at the same time expanding their business with that money. So there is significant risk as they get bigger.

Insurance companies plan for once in a several hundred year storms. I know. I've worked in the industry. There are also RE-insurers, companies who INSURE the INSURANCE companies. Fractional reserve banking is fraud. You cannot equate the two, to do so is fallicious.

LOL, several hundred year storms, eh?? Yeah, which is exactly why AIG needed $130 billion and nationalization in order for them to even be solvent, let alone exist. Get over yourself. You remind me of that smug guy down the street who thinks he knows it all and doesn't get along with anyone. You are being pretty rude in your responses, so please kindly piss off in the future, k? If you worked in the "insurance business", then you're clearly very immature and a douche bag. In either case, I feel sorry for your wife/girlfriend, if you manage to have one with over 6,000 posts and that dick mentality you have.

Oh, and by the "insurers of the insurers," do you mean the Federal Reserve?? Because it seems like AIG didn't have too many backups for them Yeah, you don't know what you're talking about.

"So stfu "

 

[Lost Myth]

There are actual reinsurers. See below for a few examples.

http://www.swissre.com/
http://www.munichre.com/
http://www.hannover-re.com/
http://www.xlre.com/
http://www.lloyds.com/

Insurance is a much different beast from banks. When the Federal Reserve increases the money supply, you have no say in whether your dollar is de-valued. You're not compelled to buy any form of insurance (except car insurance) if you don't think it's worth it. Most people do because they're risk-averse.

 

[socialize_me]

There are actual reinsurers. See below for a few examples.

http://www.swissre.com/
http://www.munichre.com/
http://www.hannover-re.com/
http://www.xlre.com/
http://www.lloyds.com/

Insurance is a much different beast from banks. When the Federal Reserve increases the money supply, you have no say in whether your dollar is de-valued. You're not compelled to buy any form of insurance (except car insurance) if you don't think it's worth it. Most people do because they're risk-averse.

How did this work out for AIG? How could a private FDIC possibly insure Citigroup, Merrill Lynch, Bear Sterns, etc.??

Look, you guys seem to not understand my point about fractional-reserve banking and insurance. It has NOTHING to do with the Federal Reserve inflating the money supply, okay?? I'm not talking economics here, I'm simply pointing out that the reason why fractional-reserve banking is bad is because bank-runs are a possibility. The reason why insurance is bad is because essentially the same thing happens, only it requires far fewer people to do so!! It only takes a small minority of policy holders to die or get severely injured in order for the insurance company to go under. Who the hell covers you when the insurance company fails and you're sitting there as a 15 year long policy holder who got in a car accident and needs surgery on his kidney? The "re-insurers"?? Oh, like the ones that couldn't re-insure the world's largest insurance company, AIG?

There's NO re-insurer capable of insuring AIG. Complete BS. There's no re-insurer who could possibly insure a company where many of its policyholders became sick, injured, or died. That backstop would be torn to shreds in a heartbeat. It's hardly a security blanket you all are painting it out to be. No way in hell there's a re-insurer bigger than the actual insurance companies. You're basically asking a 150 pound teenager to lift up his 400 pound father. Not gonna happen.

 

[Lost Myth]

How did this work out for AIG? How could a private FDIC possibly insure Citigroup, Merrill Lynch, Bear Sterns, etc.??

Look, you guys seem to not understand my point about fractional-reserve banking and insurance. It has NOTHING to do with the Federal Reserve inflating the money supply, okay?? I'm not talking economics here, I'm simply pointing out that the reason why fractional-reserve banking is bad is because bank-runs are a possibility. The reason why insurance is bad is because essentially the same thing happens, only it requires far fewer people to do so!! It only takes a small minority of policy holders to die or get severely injured in order for the insurance company to go under. Who the hell covers you when the insurance company fails and you're sitting there as a 15 year long policy holder who got in a car accident and needs surgery on his kidney? The "re-insurers"?? Oh, like the ones that couldn't re-insure the world's largest insurance company, AIG?

There's NO re-insurer capable of insuring AIG. Complete BS. There's no re-insurer who could possibly insure a company where many of its policyholders became sick, injured, or died. That backstop would be torn to shreds in a heartbeat. It's hardly a security blanket you all are painting it out to be. No way in hell there's a re-insurer bigger than the actual insurance companies. You're basically asking a 150 pound teenager to lift up his 400 pound father. Not gonna happen.

In a word, no. A "small minority" of policy holders is never going to cause any decently run insurance company to go bankrupt. Insurance companies hold reserves. Yes, there's a possibility the reserves run out. For certain kinds of insurances where the claim frequencies are short-tailed rather than long-tailed, this is extremely, extremely unlikely. Also, unlike banks, policyholders can't go on runs because most sane people don't make the choice to destroy their house or intentionally hurt themselves or crash their cars because others are doing so.

The reason that people still buy insurance is that it's much more likely that an individual goes bankrupt before the insurance company does due to the law of large numbers and law of averages. Obviously, people know there's a risk that the insurance company could go under. That's a risk people take when purchasing insurance. Bankruptcy is also a risk creditors take when lending out money to borrowers. It's only a problem when the company or borrower misrepresent their financial situation.

Fundamentally, if both parties are aware of the nature of the transaction taking place and agree to it, how can it be wrong? Furthermore, is an event wrong simply because there are contingent events that could affect the expected outcome? If I decide to lend $100 to my friend, is that inherently wrong because potentially he could get run over by a train, get eaten by a shark, or die of a heart attack before he can pay me back?

Also, it should be pointed out AIG didn't get in trouble because of its traditional insurance operations. There's a ton of statistical data out there for auto/home/health/life insurance. For credit default swaps, not so much, so the risk couldn't be priced correctly.

 

[Chase]

In a free market, why should anyone be denied the right to purchase insurance? It's a calculated hedge. It comes with counter-party risk, but you gamble your money willingly knowing that there is a small chance of a major catastrophe in which you can no longer depend on said insurance provider.

 

[Athan]

I think us Ron Paul folks need our own insurance company. One that allows us to pay our monthly payments into a joint account with our insurer and allows us to meet our state requirements.

The problem isn't with insurance. It is the fact it is FORCED on people.

 

[Conza88]

Lmao, I didn't realize I needed to. I thought this was pretty much common sense thus I omitted it, but apparently it needs further explanation for you...

You can't just say so and provide fuck all evidence. Which is what you did. I can't analyse what flawed thoughts, opinions, arguments, ideologies your inept mind holds. I requested you to back up your assertion with at least some form of primitive argument. Thanks for trying. This ain't for my benefit, it is for your own. I'm answering your questions, your preposterous notion, it ain't the other way round.

It's a type of Ponzi scheme where the first people who get hurt benefit, but the last ones who get injured get nothing--as would happen if something extra-ordinary occurred.

No. That isn't what would happen. Do you even know how the Insurance industry works? I've worked within it, I've talked to people who had their houses demolished from flash floods, entire cities under water, I've done inspectitons etc.

The fact is, insurance companies are more than willing to give people insurance for things such as ipod's etc. And you ALL know someone whose cheated insurance agencies. But they do it, because in the LONG run they get their money back from a rise in premiums because of the claim.

With insurance, I can collect millions of dollars in settlement even if the policy holder only paid a month's worth of premiums.

If you're unlucky enough to have that accident happen to you sure. And if you are lucky / smart enough to have gotten the CORRECT policy, as to where you are covered, sure. What happens to the client after that payout though. PREMIUMS go up.

Isn't this how Social Security first started??

The insurance company is giving you the money THEY have. Which has been given, VOLUTNAIRLY, FOR A SERIVCE, IN-FCKEN-SURANCE.

Social security IS a ponzi scheme. It is taking from everyone else, through COERCION. The youth today ain't gonna see shit. OBVIOUSLY. But no-one has contended otherwise.

The first recipient of the first Social Security check paid something like $20 or so into the system, yet took out $20,000 in benefits over her lifetime. That's a Ponzi scheme, but yet insurance wouldn't be? HAH!

HAH! You stated the obvious, to which no-one has ever said otherwise. You're repeating what's been on Lewrockwell and Mises.org for MONTHS. HAHA!!

And it is fractional-reserve. It's banking (no pun intended) on the fact that not EVERYONE will get hurt/die at the same time, just as in the fractional reserve system banks bank on the fact that not all depositors will withdraw their money at the same time. See the similarity? Probably not considering who I'm explaining this to.

FRB = upheld through coercion and violence. Private Insurance = upheld through voluntarism and peaceful exchange. Do you know the difference between voluntarism and coercion? Probably not considering who I'm explaining this too.

And as far as leverage goes, they do extensive leverage to make further profit. They try to acquire more and more people into the system hoping that they won't get hurt and can pay for current claims being processed, while at the same time expanding their business with that money. So there is significant risk as they get bigger.

Where do you pull this info from? Apart from your ass? Speculation from someone who has never set foot in an insurance company.

LOL, several hundred year storms, eh?? Yeah, which is exactly why AIG needed $130 billion and nationalization in order for them to even be solvent, let alone exist.

LOL. ORLY?

"Paulson, Buffett and Hank Greenberg (the former chief of corrupt insurance giant AIG, now a charity child of the Federal Reserve) have all been in business together, one way or other. And some of that business doesn't smell right. We now know the bailout of AIG was also a bailout of Goldman Sachs, its counterparty on a number of deals.

This spring the government handed down convictions to employees in one of Buffett's reinsurance outfits, General Re, which did business with AIG. For decades, Greenberg has been at the center of multiple frauds including falsification of documents offshore and bid-rigging back home. His close associate, Mike Murphy, who lobbied successfully for tax treaties with Bermuda and set up many of the alter ego companies that were part of the fraud, has shredded documents to hide evidence. [There is also a behind-the-scenes power struggle at AIG between Greenberg and the post-Greenberg management, which has been cooperating with the FBI. That's relevant to what's happening too.]

What AIG did was hide losses in affiliated businesses that it owned. It did it by phony risk transfer deals. Risk transfers get better accounting treatment than loans. The fake deals also helped to reduce reserve requirements on the books so that AIG could look better to stockholders. That means the fraud worked both to boost prices and to shortchange shareholders of their dividends for years – at least through the '90s and then again from 2000–2004.

And who do you suppose sold some of those credit default swaps to AIG and its reinsurers? You guessed it – Hank Paulson's old bank, Goldman Sachs.

This is not just a problem of mortgage securities gone bad, as Buffett said in his public defense of Paulson and AIG. No. This is a matter of decades of white collar criminality, cronyism, and reckless business practices by leading banks and financial businesses, a massive bubble of stupidity, arrogance and greed that the market refuses to swallow any more. Right at the center are the very financiers who set it off.

AIG was phonying its books long before the housing bubble, at least since Alan Greenspan began cranking out liquidity on the cheap at the end of the 1980s. That is, as soon as the junk-bond mania died and the stock market crashed, money was injected into the system by Maestro Greenspan through low interest rates. The tech bubble was inflated. Goldman Sachs was in the thick of it, sending a tidal wave of credit across the globe through new and complex derivatives and through electronic trading. MIPs, SPVs, SIVs. These off-book vehicles and other hedges (for Ghana's Ashanti Gold, for AIG, for Enron, even for Fannie and Freddie) were developed before the real estate bubble, some to skirt tax rules, others to make the books look better.

What they also did was blind the companies who used them to the risks and losses they had on their books. Accounting rules and business practices that rewarded managers in the short-term exacerbated the problem. They encouraged shortsighted deal-making, quickie trading into hedge-funds, opaque off-book entities, and accounting swindles of all sorts. Now the bar tab has come due and our boon companions are making their excuses and exiting in a hurry. Guess who's paying?"

You're trying to blame a whole industry on the corruption of one company. EPIC FAIL.

Get over yourself. You remind me of that smug guy down the street who thinks he knows it all and doesn't get along with anyone. You are being pretty rude in your responses, so please kindly piss off in the future, k? If you worked in the "insurance business", then you're clearly very immature and a douche bag. In either case, I feel sorry for your wife/girlfriend, if you manage to have one with over 6,000 posts and that dick mentality you have.

I'm actually the guy who gets along with everyone. Funny enough, offline I'm not an 'ass' and I don't talk politics with anyone apart from really close friends, who do the same.

Btw, aren't you being a TAD hypocritical?

http://www.ronpaulforums.com/showthread.php?t=169945

'You're clearly very immature and a douche bag. In either case, I feel sorry for your boyfriend, with that small dick you have.'

Oh, and by the "insurers of the insurers," do you mean the Federal Reserve?? Because it seems like AIG didn't have too many backups for them Yeah, you don't know what you're talking about.

"So stfu "

Nope, I don't mean the Federal Reserve. Are you able to distinguish from the freemarket and government intervention? Appears not. Do you understand what fraud is? Appears not. I strongly suggest you read the complete article linked too above. Because

"Yeah, you don't know what you're talking about. "

 

[Conza88]

How did this work out for AIG? How could a private FDIC possibly insure Citigroup, Merrill Lynch, Bear Sterns, etc.??

Look, you guys seem to not understand my point about fractional-reserve banking and insurance. It has NOTHING to do with the Federal Reserve inflating the money supply, okay?? I'm not talking economics here, I'm simply pointing out that the reason why fractional-reserve banking is bad is because bank-runs are a possibility. The reason why insurance is bad is because essentially the same thing happens, only it requires far fewer people to do so!! It only takes a small minority of policy holders to die or get severely injured in order for the insurance company to go under. Who the hell covers you when the insurance company fails and you're sitting there as a 15 year long policy holder who got in a car accident and needs surgery on his kidney? The "re-insurers"?? Oh, like the ones that couldn't re-insure the world's largest insurance company, AIG?

There's NO re-insurer capable of insuring AIG. Complete BS. There's no re-insurer who could possibly insure a company where many of its policyholders became sick, injured, or died. That backstop would be torn to shreds in a heartbeat. It's hardly a security blanket you all are painting it out to be. No way in hell there's a re-insurer bigger than the actual insurance companies. You're basically asking a 150 pound teenager to lift up his 400 pound father. Not gonna happen.

It's not just ONE company that re-insurers you deadhead. There are hundreds or re-insurers worldwide. They decide what % to insure the company for, and its through contracts etc. Geezus fcken christ. Use your brain. And AIG was FRAUDULENT, get that into your thick head.

And if you think we ain't getting your "point" take it over to Mises.org forums and see how you go. I'll get the popcorn and laugh as you get your ass handed to you.

 

[Brian4Liberty]

Yes, you are correct, all insurance is a ponzi scheme. It is also collectivism.

 

[james1906]

Insurance has a number of clauses so that not everyone cashes out. Acts of war are usually exempted. Major catastrophes also have higher deductibles. When Hurricane Ike hit, I did not have enough damage to qualify for aid.

 

[brandon]

Private insurance has existed for centuries and we all think it's good to have--even Ron Paul; however, my question is this: How can you be against fractional-reserve banking, extensive leverage and debt, or Ponzi schemes, yet not be anti-private insurance as it seems to encompass all of those features??

Take for instance a "War of the Worlds" scenario where suddenly all of the cars on Earth stop working and you have thousand car pile ups across interstates throughout America due to some freak solar phenomenon. The chances of this are very slim, but so are the chances that everyone will simultaneously take their money out of the banks and bring the fractional-reserve banking system down. Banks are enemies of Ron Paul crusaders, yet private insurance is one of the seven wonders of the free market world in our minds. It's great that the free market has come up with such a system--a system that would collapse if an irregularity occurred where everyone insured would not get the insurance promised to them in the insurance contracts and premium payments.

Basically if enough people got in car accidents, insurance companies would fold. The way insurance companies maintain solvency and profitability is no different from how banks do it. Banks are able to make loans to people based on how much in deposits they have. If they loan out money yet all the depositors come back asking for their money, the system collapses. If only a quarter of the people insured by, say, GEICO, were in an accident, the system would collapse long before most would even get coverage. So in a way, the fractional-reserve system is more stable than the private insurance system, is it not? Because in order to insure one accident, you need more than just one other person paying their premiums. You need several more people paying into the system that aren't getting in a car accident to cover just one accident in order for the system to continue.

So, how can you not be hypocritical when you crusade against the banks yet don't waste any breath on private insurance? This is, after all, an entity created by the free market. Could it be that the human/government invention of fractional-reserve banking be a better system than private, free market insurance?? Because again, you would need a good number of depositors demanding their money from a bank. With insurance, you would need only minority of the policyholders to get in an accident and someone like GEICO would have problems.

It's not a Ponzi scheme because no one is being deceived, and the system can function indefinitely.

When you purchase insurance you acknowledge that you are taking a risk of the company not being able to cover you in a shtf situation. Just like when you deposit at a fractional reserve bank you are taking the risk of the bank losing your money if bank runs occur(Of course the FDIC mitigates this risk).

Life is full of risks. Everything we do has an associated risk. Every transaction we enter into and every investment we make has a risk. It is up to the consumer to decide how much risk is acceptable. In the insurance situation, the consumers working with actuaries have determined the ideal level of risk, which is what they use to set the cost of the insurance.

Laws requiring insurance are something that I think we should get rid of.

 

[JRegs85]

No.

The difference is the dollar (and the fractional reserve system) is legal tender - we HAVE to use it, as mandated by the government.

Private insurance is (or should be) a matter of personal choice. If all cars in the U.S. suddenly were involved in car accidents tomorrow, I would expect that I probably will not receive a payment from the insurance company. I choose to ignore this risk.

I have no problems with Ponzi schemes. If you want to participate in one, go ahead. If some company wants to set up a Social Security-type of payout (one type of Ponzi scheme), it has the right to do so.

The problem I have with fractional reserve banking is that it is MANDATED by the federal government. We have no choice.

 

[axiomata]

Isn't private insurance a fractional-reserve system too aka Ponzi scheme?

You must have really taken your teachers' "there is no such thing as dumb questions" to heart

 

[virgil47]

Insurance is indeed a ponzi scheme and it is not voluntary any more than the banking industry is. If you drive an automobile or have a mortgage you "WILL" have insurance. It is in no way shape or form voluntary.

 

[Lost Myth]

Insurance is indeed a ponzi scheme and it is not voluntary any more than the banking industry is. If you drive an automobile or have a mortgage you "WILL" have insurance. It is in no way shape or form voluntary.

Mortgage insurance is not required by law when taking out a mortgage. Borrowers will require it for anyone with even marginal default risk. If you put down a big enough down payment and/or taking out a mortgage that is clearly within your financial means, then some borrowers will not require it. However, since most people stretch their finances when buying their homes, this is rarely the case.

Apparently some of you also have a very broad definition of Ponzi scheme. Just to be clear, what definition of Ponzi scheme are we going by here?

 

[powerofreason]

omg

facepalm

 

[Imperial]

I agree with your statements, socialize me. I just think that the odds of it are low. However, private insurance is good as long as you have no illusion that things can go wrong. If it is not forced on you and is purely optional, you can choose whether or not you want to use it.

It is a matter of weighing the risk- and knowing that if you do in fact have to face a negative consequence, that it was a choice you made.