CNBC Kudlow & Cramer - Transcript

CNBC News Transcripts

SHOW: Kudlow & Cramer 5:00 AM EST CNBC

September 9, 2004 Thursday

HEADLINE: Representatives Richard Baker and Max Burns discuss potential scams by insurance companies on US soldiers

ANCHORS: LARRY KUDLOW, JIM CRAMER

BODY:

LARRY KUDLOW, co-host:

Congress is investigating whether insurance companies are scamming our soldiers by pushing high-priced policies. Hearings were held today by the House Financial Services Subcommittee chaired by one of our next guests, Representative Richard Baker. He's Republican of Louisiana. Also joining us is Representative Max Burns, Republican of Georgia. He's introduced a bill to protect those who protect us. OK, we are honored to have these distinguished solons from Washington.

Mr. Baker, I guess I'll start with you. You seem to have the heavier title. Is there insurance abuse on military bases, and if so, watcha going to do about it, sir?

Representative RICHARD BAKER (Financial Services Subcommittee Chairman): Well, the usual and customary, Larry. You know in our review of mutual fund performance over the past several years, we've uncovered excessive fees, lack of disclosures, inappropriate professional conduct-led to significant reform. In this case, it's much the similar story. We have two products: One's insurance, one's a security instrument. In both cases unusual marketing tactics were used. The individuals basically were to have heavy front-end loads paid; had to stay in the fund 15 years to have a hope of a return. And when compared with any investment in the private market, it was a miserable failure.

On the insurance side-similar circumstances, coupled with an annuity. And in order for the person to have any hope of coming out-the first two years you had an actual loss. And the annuity was your only hope of having any so-called wealth building over the course of the investment.

Most of the young men and women who purchased these products had no idea about the financials that were underlying them. They engaged in these because they believed it to be the right thing to do because, in most cases, it was a retired senior officer who was marketing the product.

JIM CRAMER, co-host:

Incredible. All right. Congressman Burns, I know you've introduced something to try to make it so that you protect the soldiers in your state. Can you just tell me, first of all-in The New York Times yesterday there was an amazing story. It's obvious that there are some officers trying to do the right thing, trying to get young privates to drop abusive policies. It's amazing that these rogue insurance companies are using the tragic deaths in Iraq to slander some of these good officers. Is there any way to be sure that these good officers don't get the shaft, get promoted or whatever happens, and we get these rogue insurance companies out of those bases?

Representative MAX BURNS (Republican, Georgia): Well, I think we had a good hearing today. We introduced a bill this week that would solve this problem, both from the standpoint of the contractual plans, the investment approaches, but also the regulatory problem that we have. Right now on military bases throughout the world we have a problem where insurance agents don't adhere to any state regulate or guidelines, and we're fixing that. So I think the good news is that we've got some good people out there who want to do right, and they're stepping up to the plate to correct the problem. Congress is going to do its part; we're going to fix the problem, we're going to protect those who protect us. And we can't let them go into a hostile environment without good investment products, good insurance products and the best that our nation has to offer.

KUDLOW: Mr. Baker, I'm going to surmise that neither you nor Mr. Burns are rabid, left-wing overregulators. So I want to ask you, is there a role that the American Insurance Council could and should be playing here? We've had Frank Keating on the show. And is there a role for the Pentagon to play to deal with the abuses that my partner, Jim, just mentioned?

Rep. BAKER: Well, we're looking forward to having some military officials at the next hearing on this matter because the question still is clearly there: How were these folks allowed on base to market their product? If they were allowed on, why not a free-market competition to offer the enlisteds the best possible competitive product being reviewed by military experts? It seems in this case the very worst possible choices were made, and that's where the military needs to come forward and tell us what their systems are for allowing this marketing to occur on base.

As to the professional standards utilized here, there's a lot of room for improvement. Some on the Democrat side have suggested a suitability standard in matching the mutual fund product with the enlisted person. Don't know if we need to go quite that far yet. My judgment is we certainly need to hear more from the ACLI about reforms that are needed to keep this kind of behavior from being condoned. To date, they've got a little work to do.

CRAMER: All right. Mr. Baker, let me stay with that because one of the things that confused me is banks are federally regulated. Stocks, bonds, mutual funds-federally regulated. Why is there no federal-it just-I don't understand. Why is there no federal insurance body? Why can't I, as a salesperson, jam you with the worst, just most ridiculous, God-awful products if I'm selling insurance, but I know I'd get in trouble if I were doing that in the stock market?

Rep. BAKER: Well, one is there's a lack of competition. Just like in this military base instance, there's apparently very few products offered. And so when you're headed out on active duty, you're worried about your family and your children, you're going to take advantage of whatever opportunity's offered, especially when the military is telling you that it's the wise thing to do. In the free market, we need more open competition. It's clear in states with less regulation, more competition-consumers win. There are more providers at lower premium cost. That's another subject, but we have major reform legislation now pending to create a more national environment for the sale of insurance product. It does stop short, however, of creating a new federal regulator. Mr. Burns and I both, as Larry earlier said, are very pro-market, less-regulation kind of guys. I think we can find ways to enhance competition without the necessity of a federal regulator.

KUDLOW: Mr. Burns, just a last question on that. The federal Thrift Savings Plan that is used for retirement purposes in the Hill...

Rep. BURNS: It's a great model.

KUDLOW: ...which may be a model for Social Security reform...

Rep. BURNS: Right.

KUDLOW: ...could something like that be published for approved insurance policies on military bases, and then let the men and the women make their own consumer choice?

Rep. BURNS: That's a great option. And one of the things that we're looking at and one thing that our military folks can now take advantage of is that Thrift Savings Plan option. The challenge that we face right now-military bases is-like Chairman Baker says, there's not open and full disclosure of what's being sold. Our military is sometimes being offered products that are not in their best interest, and they're purchasing things that do not fit their individual needs. So Thrift Savings Plan is a great option for those in the federal employment environment and for members of Congress, and it's certainly a great opportunity for those in our military.

CRAMER: That's a terrific idea, Larry, I gotta tell you. I've been thinking a lot-that's just a great way to get around this thing and solve it without having-putting it on some new agency.

KUDLOW: Right.

CRAMER: All right. Anyway, Chairman Baker, thank you so much for coming back on KUDLOW & CRAMER.

Rep. BAKER: My pleasure.

CRAMER: Representative Burns, great to see you.

Rep. BURNS: Hey...

CRAMER: Thank you so much for...

KUDLOW: Thank you.

CRAMER: ...caring so much about this issue. Everybody's pretty fired up about it.

Next, Senator John Sununu from New Hampshire on what's ahead and what is wrong about what people want to do with Internet telephony.

Later, Bill Rancic-my hero! Give me an autograph for my kids. He's the guy who was hired. He's busy building a 90-story high-rise in Chicago. Hey, we ask him how it's going. Stay with K&C.