One clear lesson of the AIG meltdown is that a financial services company should not be allowed to choose its own regulator, as AIG did. Despite that obvious warning, Melissa Bean and Ed Royce have introduced legislation in the House of Representatives to institute an “optional federal charter” for insurance companies, meaning insurers could select between state and federal regulation and switch back at will. To be truly effective, the regulatory relationship should be long-term and committed, like a marriage, not ephemeral and casual, like a one-night stand.

How we regulate insurance is not an esoteric issue. Insurance companies collect more than $1,000bn (￡680bn, €750bn) in premiums each year and have more than $6,000bn in assets. Huge buyers of corporate debt, they are a major source of financing. Without insurance, you cannot buy a house, drive a car or open a business. Because they make long-term promises to pay if something bad happens, effective regulation ensures they deliver by requiring them to hold enough money in reserve.

How was AIG regulated? AIG is an international financial services holding company – with $1,000bn in assets at its peak – that owns insurance companies and other businesses. AIG secured a tiny savings and loan, which permitted it, in 1999, to choose the federal Office of Thrift Supervision to regulate the holding company and its non-insurance operations, including the now- infamous Financial Products unit. Almost non-existent regulatory capital requirements permitted that unit to take the risky bets that brought down AIG and resulted in its bail-out – all the while regulated by the OTS, whose expertise – savings and loans – represented just one one-thousandth of its balance sheet. Meanwhile, AIG's insurance companies, regulated by the states and subject to capital requirements, have remained solvent and relatively healthy.