In recent testimony before a Senate subcommittee, New York Attorney General Eliot Spitzer complained that "favoritism, secrecy and conflicts" rule the insurance industry. He says that about other financial businesses, too, particularly when middlemen (brokers) are involved. But favoritism, secrecy and conflicts amount to little more than name-calling -- subjective opinions, not proven crimes.

 Spitzer went on to explain how his latest investigation of the insurance industry relates to his previous accusations of bias among stock analysts and his fetish with active trading in mutual funds. "Similar to the small investor on Wall Street or in mutual funds," he said, "the ordinary purchaser of insurance has no idea that the broker he selects is receiving hidden payments from insurance companies, that the advice he receives from the broker may be compromised ..."

 Spitzer divined "a very familiar pattern" among his highly publicized assaults against stockbrokers, insurance brokers and mutual fund brokers, such as "inadequate disclosure." The familiar pattern is not really in the way these industries go about their business, however, but in the way Spitzer goes about creating an illusion that his unproven accusations involving a few people in a few firms are symptomatic of some industry-wide "scandal" or "corruption."

 A state attorney general ought to take criminals to court, where they have the right to defend themselves. But crimes are committed by individuals, rather than by entire industries, and courts are a nuisance. There is far more publicity to be had by re-labeling longstanding, voluntary business arrangements as "corrupt."

 Fraud is a crime. Bid-rigging is a crime. But "secrecy" and "conflict" are imaginary crimes. One could as well accuse Spitzer of inadequate disclosure, because he carefully avoids the sunlight of public trials in favor of the secrecy of deal-making and plea bargains. One could also accuse Spitzer of a conflict of interest -- selecting "investigations" on the basis of publicity value in preparation for running for higher office.

 The New York prosecutor's latest accusations about insurance brokers have been criticized by myself, Henry Manne and William Holstein in separate Wall Street Journal op-eds. What I want to do here and now is highlight three themes common to Spitzer's attacks on financial industries.

 The first theme is that buyers of financial services are assumed to be extraordinarily ignorant and gullible. This assumption is particularly implausible in his complaints against insurance brokers Marsh & McLennan and Universal Life Resources (ULR). A fawning piece in Fortune claims Spitzer is "invariably on the side of the little guy." In ULR's case, these "little guys" include Intel, Colgate-Palmolive, Eastman Kodak, Marriott, United Parcel and Dell. These are scarcely innocent babes in the woods.

 Corporate insurance clients can switch brokers or deal directly with insurance companies. Spitzer's Senate testimony cited a private estimate that "Marsh and AON together comprised 54 percent of the global brokerage market." But the relevant market is for insurance, not brokerage, and a fourth of property and casualty insurance is sold without brokers.

 Spitzer's complaint against ULR inadvertently demonstrates ample competition among brokers -- noting Met Life "had override agreements with at least 60 brokers." The mere presence of such an agreement with one of those many brokers does not automatically "steer" business toward Met Life, since other brokers and insurers have similar agreements.

 The fact that most corporations have chosen to use a broker rather than deal directly with insurers proves that brokers are providing useful services and negotiating better deals. "Conflict of interest" does not depend on whether brokers are paid by sellers or buyers, because any broker who did not continually earn a good reputation by taking care of customers would soon lose clients to those who do. Insurance companies have no incentive to pay contingent fees to brokers who cannot attract and retain corporate customers for their policies.

 Spitzer's second major theme involves loose, subjective accusations of "inadequate" disclosure by middlemen. Consider Spitzer's allegations that ULR "generally" failed to provide clients with "appropriate" or "adequate" disclosure of fees received from insurers. His complaint says ULR "fails to meaningfully disclose the substance of its agreements." Yet "meaningfully" turns out to mean, "ULR has never explained to its clients how overrides and other undisclosed payments might influence its professional advice."

 By this peculiar standard, travel agents would be expected to tell travelers that fees they receive from airlines and hotels might influence which vacation they are advised to take. And realtors would be expected to tell homebuyers that fees they receive from the sellers of homes might influence which homes they are steered to. Continued...