At 11:15 AM 11/22/2001 -0800, David Honig wrote:

At 08:46 PM 11/21/01 -0800, Petro wrote:
> No. Libertarians are for "free markets", which are inherently
>capitalistic in nature, but the reverse is not true. There are many
>*wealthy* capitalists who are all for strongly regulated markets and
>high barriers to entry. One could argue that they are not Capitalists.

Those are philosophical parasites. Like a congressvermin who campaigns
on liberty and once in office destroys it.

A good recent example is Warren Buffett calling for an FDIC-style government insurance against terrorism. In the sweet name of self-interest he proposes that the government increase existing insurance moral hazards by forcing all citizens to underwrite those who have chosen to live or work in higher risk areas.

http://www0.mercurycenter.com/premium/opinion/columns/terror20.htm
I'M in the insurance business -- an expensive place to be in the past couple of months. It was made costly for Berkshire Hathaway, the company I run, because I did something very dumb: allowed Berkshire to provide insurance coverage for a huge catastrophe loss without its getting a premium for doing so. The risk we unthinkingly assumed was a loss from terrorism.

Given the degree of my error, I was lucky: We estimate our Sept. 11 loss at Berkshire to have been ``only'' about $2.3 billion. That's more, by far, than we've ever lost from a single catastrophe, but the toll could have been far larger. Indeed, had a nuclear device been available to Osama bin Laden, the loss could have bankrupted most of the insurance industry.

A potential loss of almost infinite magnitude can be assumed only by an entity of almost-infinite resources. That entity doesn't exist in the private sector. Only the U.S. government fits the bill.

Washington has accepted this proposition to a point. Congress is now agonizingly trying to create some sort of industry-government coalition that would insure losses from terrorism.

Some proposals limit the government's liability but leave the risk for the industry open-ended. These proposals won't work: If unlimited liability is left with insurers, they will necessarily refuse to renew policies they see potentially leading them to bankruptcy.

Equally bad, all the proposals now being considered will engender pricing based upon risk exposure: If a business is located in a high-risk spot, it will be asked to pay a staggering price for insurance. Risk-based pricing is normally equitable and desirable. In this case, though, it would have anti-social consequences.

For example, the terrorism risk per dollar of insured value may be 10 or more times for iconic or critical properties in New York City what it is for properties in less-populated areas. But great cities are central to our society. We don't want them to wither under the burden of hugely disadvantageous insurance costs. Their citizens almost certainly bear above-normal physical risks in the terrorist war being waged upon us; we shouldn't impose crippling economic costs on them as well.

We should adopt the Federal Deposit Insurance Corp. as a model for where we want to head in the insurance industry. The rationale for the FDIC, formed 68 years ago, was clear-cut: The United States sorely needed to eliminate bank runs and the financial panics they caused. Before the FDIC, the risk from bank failures resided with depositors, who had no way to shed it.

Neither they nor their banks could lay that risk off on private insurers for two reasons. First, the dollar amounts involved were simply too large; second, losses were correlated, in the sense that the failure of a few banks frequently caused a chain reaction, toppling good banks with bad, leaving a mountain of economic damage. Fortunately, these punishing disruptions to our economy were ended by the advent of FDIC insurance.

Now, millions of business owners, individuals, landlords and lenders bear the economic risk of terrorist attacks. Insurers won't assume the risk -- we were previously dumb, but we've learned. It isn't right, though, that these risk-laden millions should have to shoulder this burden themselves.

If we were to adopt an FDIC model for handling terrorism, the insurance industry would not be permitted to earn a dime from the coverage. Instead, a premium tax, payable to the U.S. Treasury, would be levied on all insurance. This would have the equitable effect of spreading the terrorism-related cost to the country in general, just as we spread defense expenditures.

Were such a proposal enacted, it should sharply limit private lawsuits seeking to place blame on some party involved -- an airline, say. We should want the Treasury to make payments to victims solely to compensate them for loss of property, life or direct earnings, without worrying about fault. The law also should cover war losses.

Some people will argue that an FDIC model for insurance would be a socialistic intrusion into the private sector, yet that institution is today generally regarded as having been enormously beneficial. Once, the problem was bank runs and economic panics; we found an innovative solution. Today, the problem is terrorism and its capricious effects on insurance costs; we need a solution of comparable efficacy.

Warren Buffett is chairman of the board of Berkshire Hathaway Inc., a diversified company with insurance operations, and a director of the Washington Post Co., which has an investment in Berkshire Hathaway. This was written for the Post.