Q&A: Liberty Mutual’s Ted Kelly on Financial Regulation
There?s no mistaking the brogue of Edmund ?Ted? Kelly, the Irish-born chief executive of Liberty Mutual Group — or his views on politics and economics. The head of the Boston-based insurer has a PhD in mathematics from Massachusetts Institute of Technology and colorful ways of expressing his opinions. He talked with The Wall Street Journal about Washington?s efforts to remake financial regulation after the worst financial crisis since the Depression. An abridged transcript:
What?s your main hope for financial regulation legislation?
Our hope is that they will leave us alone, particularly the property and casualty industry. We don?t make systemic risk (that can take down the financial industry). With us, if you want our money, you have to burn your house down.
But didn?t the meltdown of AIG show that insurance companies can help produce global panics?
AIG is all?s favorite thumping boy. But it was a remarkably well managed company, except for one unit (that mishandled derivatives). It was much better managed than many banking behemoths that were at the heart of crisis.
The bill that passed the House would ding large financial institutions to make a pool to pay for the termination of those financial firms whose failure would threaten the economy. Your view?
Under the House bill, we would be theme to an assessment because we are a financial services organization with more than $50 billion in assets. We have more than $100 billion.
We?re being tagged because of our size (not riskiness). There is religious theory of risk — if you have a concentration of wealth, God will find it and punish it.
Among insurers, Hartford, AIG and others received bailout assets. Should any insurer be bailed out?
I don?t reckon any company needs to be saved. But there has to be a way to place a company out of its misery without destroying all around it. Saving AIG and Hartford distorted the market. Why should someone be confined if they made a financial mistake?
It wasn?t a mistake to protect the problems AIG had with derivatives. That made a huge crisis. But you could have confined that part of the business and liquidated the insurance companies to pay back (claimants). The argument they needed to be saved it was really specious.
Most regulatory reform plans would require systemically vital financial institutions to hold much more capital. What?s your view?
Capital is not a protection against risk. It?s a way of curbing progression.
Look at Lehman Brothers. It was well capitalized (before it collapsed). It ran out of liquidity. In the end financial storms are caused by liquidity crises. You run out of money.
But if you?re worried about institutions being too huge during crisis, constrain progression when there isn?t a crisis.