Two observations about the unfolding insurance scandal:

The first has to do with the willful blindness on the part of so many people to business practices that don't even come close to passing the ethical smell test. One day, the practice of insurance companies paying "contingent commissions" to brokers is so commonplace that Wall Street analysts can calculate what percentage of revenue and profit they represent for the big brokerage firms. Then, Eliot Spitzer comes along and points out the obvious conflict of interest for brokers whose only job is supposed to be looking out for the best deal for their customers. The next day, they're history.

It wasn't only the brokers and the insurers, by the way, who failed to see the problem hidden in plain sight. So did any number of state insurance regulators and business reporters, as well as customers, who in this case were sophisticated corporate types.

This ethical blindness, of course, is hardly unique to the insurance industry.

Remember "earnings management," which used to be the subject of how-to seminars offered by accounting firms? It is now the subject of how-not-to seminars run by law firms.

Or how about those "hard" and "soft" dollars paid by mutual funds to Wall Street firms that steered investors to their products or provided "free" research -- until Spitzer came along.

My sense is that these practices developed gradually, in small steps, none of which was enough of a change to ring any warning bells. In time, they became so widespread everyone just assumed they were okay.

But -- to my second point -- I suspect it is not coincidental that these practices developed mostly in industries where middlemen have played a key role, with the cost of their services bundled into the price of the final product (the stock, the insurance policy, the mutual fund). This lack of price transparency brought with it a lack of price competition, allowing brokers to earn incomes that bore too little relation to the skill, time and risk involved.

Now, however, deregulation and technology and hyper-competition have conspired to threaten this arrangement.

In a world of discount airlines and online booking, travel agents can no longer rely on the hidden 10 percent commissions folded into airline ticket prices. As a result, a much smaller industry is moving to a new model in which agents compete on the basis of price as well as service with each other, and with lower-cost automated systems.

Similarly, in a world of fragmented media and ruthless cost-cutting by clients, advertising agencies can no longer pay for their creative services by collecting the traditional 10 percent commission for buying TV time or newspaper space. Instead, advertisers are demanding that all commissions be rebated to them, while they negotiate hourly fees or flat rates for media buying and creative services.

Other industries, however, continue to resist the assault on hidden commissions and bloated fees.

Doctors are up in arms about strict new federal rules that prevent them from referring patients to labs in which they hold a financial interest -- except when they are located in the same building as their offices.

And auto dealers in several states have beaten back legislation that would require them to disclose the spread between the interest rate they charge and the rate they pay for car loans.

The real estate industry used its political muscle to crush a Bush initiative that would have allowed consumers to shop around for the best price from mortgage brokers and title companies. And while current rules prevent real estate agents from collecting referral fees, the big agencies get around this by setting up their own mortgage and title companies and steering clients their way.

Meanwhile, the National Association of Realtors has adopted rules that could be used to block access to its regional databases of available houses to discount brokers or Internet referral services that are now threatening to undermine the traditional 6 percent sales commission. The initiative has been put on hold, however, pending a Justice Department antitrust review.

There's still a profitable place in the economy for brokers, agents and other middlemen. But if their services are worth it, they ought to prove it in genuinely competitive markets, just like everyone else.

Steven Pearlstein will host a Web discussion at 11 a.m. today at He can be reached at