As technology has advanced, the finance, insurance and real estate industries have increasingly converged, becoming an ever more important sector of the U.S. that the Department of Commerce has labeled “finance, insurance, and real estate,” or FIRE. Like many sectors in the economy, the growth of the FIRE sector has been hindered by unnecessary regulations and discriminatory taxes. These barriers have only multiplied in the wake of the 2007 financial crisis. The FIRE sector can thrive only when the government allows the market to work without undo interference. It will never be possible to fully regulate the risks involved in the FIRE sector, despite the best efforts of government.
Public policy solutions that conform to these principles typically involve ending subsidies, bailouts, and government insurance schemes that allow some actors to reap profits from taking risks but escape responsibility for losses. They also involve lowering taxes and making them less economically destructive, removing unnecessary regulatory barriers, and replacing government provision of goods and services with private providers.
The financial industry consists of banks, thrifts, credit unions, stock markets, futures and options markets, and investment firms. Congress has been active in overseeing the financial sector, yet attacks on investment firms and lenders have become everyday occurrences as politicians seek to assign blame for the nation’s economic downturn on “speculators” and demonstrate they are “doing something” about it. Good public policy in finance would allow the free movement of capital, remove tax disincentives against investment and encourage financial responsibility.
The current regulatory environment for property insurance is characterized by heavy-handed regulation at both the state and federal levels. Consumers suffer when regulations appropriate for a different era reduce competition, discourage innovation, and limit choices. Public policy in property insurance should seek to create a world where insurers are free to sell the products they want to sell, consumers are free to buy them, and insurance serves a crucial risk-management and safety-promoting function that in many cases makes political intervention in individual affairs unnecessary.
Proposals to increase regulation of the real estate industry are in the news these days thanks to record foreclosures, a collapsing credit market, spiraling losses for some of the nation’s largest and most respected financial institutions, and the spectacle of government agencies racing to find short-term solutions to stop the collapse. Many of these problems are the result of regulatory policies that unnecessarily raise costs, limit competition, and expose taxpayers to risk.
Commerce in finance, insurance, and real estate should take place in an environment driven by markets, not burdened with extensive regulation, taxation, or competition by government agencies. Where possible, rules concerning transactions in these fields should result from private collective action (contracts) taking place under the rule of law, not government regulation. While governments do have a role to play in supporting the creation of a legal environment conducive to business, they must exercise this role in a predictable and non-bureaucratic fashion.
Barriers to competition in the finance, insurance, and real estate industries should be lowered or removed so consumers have more choices and innovation is possible and rewarded when successful. Key among these barrier are taxes, there should be no discriminatory taxation of finance, insurance, or real estate products. Removing these regulatory and tax barriers has become increasingly important as the marketplace for FIRE has become more globalized. In order to remain competitive internationally, finance, insurance, and real estate markets must be allowed to function as seamless global marketplaces with no artificial barriers erected by governments.
The Heartland Institute's experts on finance, insurance, and real estate (FIRE) policy issues are available for legislative testimony, speaking engagements, and media interviews.
