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Kudlow’s Money Politics

Larry Kudlow’s daily web log of matters political and financial.

TARP the Life Insurers? This Is Nuts



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Is bailout nation about to strike again? Sure looks like it. According to this morning’s front-page Wall Street Journal story, life-insurance companies are about to get TARPed. This is nuts.

While the public clamors for an end to TARP, and while commercial banks of all sizes are trying to pay back their TARP money, the Treasury Department is now proposing to extend bailout funds to life-insurance companies, most of which are really in no danger of failing. And for those that are in danger, surely it’s time for a bankruptcy proceeding instead of more taxpayer money.

We are already on the hook for banks, GM and Chrysler, and lube jobs for guaranteed government-backed GM warranties. And now comes life insurance. When will this country stop saving losers and start rewarding winners?

Meanwhile, no one has proven that life-insurance companies constitute true systemic risk to the financial system. No one. This is nothing but a bailout. Actually, it’s a precautionary bailout, sine none of these insures have failed.

And when you read the WSJ story, which surely comes straight from Tim Geithner’s Treasury, you see a bunch of “what if” scenarios. Despite the stock market rally and proliferating signs of an economic comeback, a new TARP regime is being prepared in case insurers lose more money in their stock portfolios, or their bond investments, or their residential- and commercial-mortgage purchases. (By the way, corporate bonds — which are heavily owned by life insurers to pay out retirement contracts — are rallying big time, with prices rising and yields declining.)

But for those insurers who may lose money on their investments, tough luck. A lot of these life insurers own variable annuities, which are retirement products that guarantee minimum returns no matter what happens to the stock market. Most of these products won’t come due for ten years or more. And the break-even point is something like 600 on the S&P 500 index, which is now above 800 and rising.

Not all the life insurers would be eligible for bailout funds — only those that own federally chartered banks or thrifts, like Hartford Financial, Genworth, Prudential, MetLife, and Lincoln National. But the WSJ article goes on to say that a number of life insurers are doing very well and still have triple-A gilt-edged ratings. These include MassMutual, New York Life, Northwestern Mutual, and TIAA-CREF.

A recent Bloomberg accounting of the federal financial-rescue package puts the grand total at $2.5 trillion for taxpayers on the hook. That’s a lot of future debt. And that total does not include the Federal Reserve’s $1.7 trillion, which is about to grow by at least another $1.5 trillion. It’s unclear right now how much money the life insures might get from TARP. And with members of Congress on recess — and undoubtedly hearing a mouthful from constituents who are fed up with bailout nation — it remains to be seen if our elected lawmakers will actually back up the Treasury’s life-insurance bailout.

But is there any limit to this administration’s intentions to interfere and perhaps control large swaths of our economy? And do these life-insurance mavens know what they’re getting into by going on the hook to Congress? And does anybody remember that free-market capitalism is about success and failure?



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