The Next Time Bomb

Our Regular Reader knows my fascination with Bermuda; there've been more than a few missives about the country. Most reflect my belief that Bermuda represents a real life, real time social petri dish. As Bermuda goes, so will the USofA. The reason is straightforward: Bermuda abandoned its natural strengths in tourism, to becoming a tax evasion haven (Bermudians dislike that characterization, but so what?). The government rewrote its laws (much as North Dakota did for the credit card industry) to support tax evasion. The result of this was to import a significant number of foreigners, at high salaries. The result of this increased skewing of income distribution has led to two inflation forces: demand pull, due to the high salaried imports bidding up housing, in particular; and cost push, due to the increased demand for imported goods caused by those same high salaried minority. The predictable reaction: native Bermudians demand wage increases to "keep up with prices", as such folks always do. They'd done nothing to produce the higher prices, and didn't buy the argument that they deserve to have their incomes de facto reduced. Income is always relative, never absolute.

Last month, the NY Times ran a piece on Bermuda's next foray into manipulating the financial services sector of the global economy. Further revealing the hollowness of Bermuda protestations of innocence.

We have another mine. We need a new canary. Herewith, some eye opening quotes.

The hedge fund industry has been rushing headlong to open Bermuda-based reinsurers. ... And while the hedge funds are likely to profit, the question is: Who's watching to make sure this doesn't lead to another financial calamity?

And, of course, few if any strings attached:

Yet while they are partly hedge funds, these new companies are regulated as reinsurers. And Bermuda requires only minimal capital requirements and disclosure of financial positions, and it does not strictly regulate how these companies invest their money.

As the incentives which led to The Great Recession, hedgies are looking for better than risk-free return (Treasuries, for example), damn the torpedoes.

Let's close with one more quote (you really should read the whole piece; especially if you're the Stephen King sort of weeny):

In other words, the reinsurance market is starting to look like many of the markets before the financial crisis -- lightly regulated and interconnected in ways that policy makers can't see, with banks potentially left with the wreckage. The industry may be right that reinsurance is different and has its own checks and balances, but we've also heard that before. It behooves United States regulators to make sure.

Given that Wall Street runs DC, not the other way around, do you think that likely? Will the Merry Quants blow up the world again? How many of you, Dear Readers, have even heard of re-insurance? How many would know to even go looking? QED