Some Life Insurers Will Get Bailouts Too

The way things are going, the US taxpayer is going to be backstopping every bond buyer in the US. The latest wrinkle is that the TARP will be extended to “certain eligible” life insurers. The report at the Wall Street Journal is skeletal:

The Treasury Department plans to extend the Troubled Asset Relief Program to certain eligible life insurers, according to people familiar with the matter….

The Treasury is expected to announce within the next several days the inclusion of life insurers that are bank holding companies or own a thrift, these people said.

How much money would be available to the insurers remains unclear. The Treasury says it has about $130 billion remaining in TARP funds. Life insurers that are bank holding companies have been eligible for TARP for some time, but the Treasury had not yet given the green-light to approve their applications.

Several have applied, including Prudential Financial Inc., Hartford Financial Services Group Inc. and Lincoln National Corp. No decisions have been made yet about which applications will be approved, these people said.

Given how liberally the TARP legislation was drafted (the targets are “financial institutions”), I am a bit surprised at the fact that potential beneficiaries are being limited to insurers with bank holding companies. Perhaps that is deemed necessary so that the Fed has at least some regulatory oversight (the Fed oversees BHCs; insurers are regulated at the state level).

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  1. Anonymous

    Former Hartford executive Neal Wolsin is appointed to be Deputy Secretary of teh Treasury and now Hartford gets a bailout. Woohoo! Gotta love it.

  2. cai berry

    Where were the regulators? Has any financial institution had any regulatory oversight? Or any enforcement of capital or reserve requirements? Unreal!

  3. Anonymous

    Aren't PEs & hedge funds 'Financial institutions' as well?

    Maybe its time for the taxpayer to backstop the likes of Cerberus and Citadel as well.

  4. john bougearel

    And that is the way I’ve heard it always should be…

    Countless forced shotgun weddings are being forced upon the taxpayers, countless bad marriages are being arranged by the Obama admin, US Treasury, FDIC, and Fed between the taxpayer and defunct private entities.

    For the taxpayers, these are all marriages from hell, these arranged so-called “public-private partnerships.”

    My father sits at night with no lights on
    His cigarette glows in the dark
    The living room is still
    I walk by, no remark
    I tiptoe past the master bedroom where
    My mother reads her magazines
    I hear her call sweet dreams
    But I forgot how to dream
    But you say it’s time we moved in together
    And raised a family of our own, you and me
    Well, that’s the way I’ve always heard it should be

    My friends
    from college they’re all married now
    They have their houses and their lawns
    They have their silent noons
    Tearful nights, angry dawns
    Their children hate them for the things they’re not
    They hate themselves for what they are
    And yet they drink, they laugh
    Close the wound, hide the scar
    But you say it’s time we moved in together
    And raised a family of our own, you and me
    Well, that’s the way I’ve always heard it should be

  5. jmf

    Moin from Germany,

    more fun with AIG & the Fed…..

    AIG aircraft unit seeks $5 billion Fed credit line: report

    Reuters) – American International Group Inc’s aircraft leasing unit is in talks over a $5 billion credit line from the New York Federal Reserve that could be used to facilitate its sale, the Financial Times reported on its website late on Tuesday.

    People close to the situation told the paper that discussions between International Lease Finance Corp (ILFC), AIG and the New York Fed were still ongoing and no decision had yet been taken on whether the facility would be provided or how big it would be.

    The credit line from the Fed would come from the billions of dollars worth of loans the monetary authorities have already extended to troubled insurer AIG, the paper said, citing people close to the situation.

    Reuters’ efforts to contact the New York Fed and AIG out of regular office hours were unsuccessful.

    ILFC, one of the world’s largest aircraft leasing companies, is one of the units AIG has put on the auction block. Private equity firms are eyeing the firm, and a buyer could get financing help from AIG under revisions to AIG’s U.S. financial rescue in March.

  6. Dave Raithel

    The questions are: What must I do now to care for those who are left behind after me? And upon whom may I rely to carry out my decisions, once I am gone ….?

    But of course, those are THE questions, whether the specific is Social Security or Medicare or the Pension Benefit Yabadabadoo Pile of Promises … for which nobody wanting to stock up on ammo wants to pay amything at all … ‘cept maybe to help kill ‘Mexicans coming across the border … as if it is ours …..

    All of this all along has been a dispute over who shall be made worse off relative those making the decisions….

  7. Roger

    In business, size matters. But maybe not the way you think it does. An overlooked, but obvious common denominator in the numerous ‘bail-outs’ of late is in the sheer size of the companies involved. They are all big. Huge actually. Perhaps we should take a closer look at that. Perhaps size is a problem in itself?

    A common taxpayer response to the bail-outs has been why? Why should our tax dollars be used to prop up a badly managed, failing company, or worse, a company who brought the situation upon themselves? Just because they are big? Small and medium-sized business owners in particular are annoyed; many of them could use help too. But they don’t qualify for bail-out cash because, in the big scheme, they don’t matter. And they don’t matter because they are not big. To qualify for bail-out funds, your failure has to be perceived as potentially catastrophic. And for that you need to be big. Really big.

    Growth. Expansion. Globalization. Getting bigger, almost in and of itself, is a central goal of Management. Boards encourage growth. And getting bigger often rewards shareholders. So CEO’s compensation plans reward growth over most other metrics. But is big good for the rest of us? From a consumer’s perspective, quality goods and services at a reasonable price is what really matters. Sometimes being bigger helps a firm to deliver on this, sometimes not.

    Consider the case of small and medium-sized businesses (SMBs). In Canada and the U.S., SMBs employ over 50% of the workforce, create 8 out of 10 new jobs and grow at a much faster pace than big business. If SMBs are the driver of growth and jobs, and big businesses pose huge financial and job loss risks, wouldn’t it be better if all companies were SMBs?

    Really big companies employ tens, sometimes hundreds, of thousands of people. If they fail, a lot of jobs are lost. Enough to make headlines. Politicians don’t like those kinds of headlines. And a failure of a company employing that many people causes a lot of personal devastation, often within a smaller community. Placing a physical limit on the size of companies would reduce or eliminate a lot of these problems.

    We have long known that distributed systems in other fields are better than centralized ones. They are more robust, less prone to failure, and easier to fix if damaged than centralized systems. Google uses tens of thousands of PC-like machines to respond to search queries rather than just a few super-computers, the failure of any one of which could be disastrous to their business. It’s the same basic reason that the Internet doesn’t fail. There are small failures throughout the internet (probably every day) but they have little or no effect, as the system itself never fails.

    Why would we, as a society, organize ourselves to allow so much wealth, power, and employment concentrated in just a few companies? It creates fragility in the economic system in the same way that a few large supercomputers would for Google.

    Lest you think that limiting the size of companies is somehow counter-capitalistic, remember that we already do limit the size of companies. And we do it for good reason: to limit unfair competition.

    In the 60’s, the Department of Justice broke up the Telco monopoly held by At&T precisely because they were too large, and consequently had too great a power to set unfair prices for their products and services (remember how much long distance used to cost?). More recently a proposed Yahoo / Google deal fell apart as it would have been properly opposed and likely defeated by the Department of Justice for the same reason.

    So limiting any one company’s size to protect society is not without precedent. Why not limit size to create a more distributed and robust economic system?

    This observation, that large companies pose a real risk to the financial system when they fail, may or may not help us to figure out how to prevent another economic meltdown, but limiting the size of companies would limit the devastation. No bail-out cash required.


  8. K Ackermann

    Limiting the size of the large banks is just one more completely rational and patently obvious thing that TPTB do everything they can to ignore.

    We tend to fall for the red herring because it’s all meted out in controlled doses.

    The companies shape policy, and they try to shape opinion. During this crisis, how many times have we heard some basic questions asked out loud? Next to none.

    Here is a basic question: is Citi a good citizen?

    Here is just the briefest glimpse toward an answer to that:

    Citi Fined $250,000 by NASD Over Bogus Hedge Fund Marketing

    Citigroup Fined $100 Million for ARS; ABCP Fiasco

    Citigroup Fined $25 Million for European Trading Practices

    Citi Fined $6.25 Million For Bogus Mutual Fund Trades

    Citi Global Markets fined $300,000

    Citigroup fined $70 million for loan violations

    Citigroup will pay $2.65 billion to settle WorldCom suit

    Citigroup fined £721,000 for Insurance Fraud

    Citi Fined $500,000 for supervisory failures on its precious metals trading desk

    Citigroup fined $350,000 by NYSE over inaccurate e-mail

    Citi Fined $120 Million Over Enron Books

    Citigroup Global Markets to Pay Over $15 Million to Settle Charges

    Citi Fined $16.29 Million for Indian Stock Market Scandal

    Citigroup Unit Fined $26 million for Mutual Fund Fraud

    Citigroup Fined $350,000 Over Research Disclosure

    Citigroup Inc.’s Smith Barney unit was fined $1 million by the New York Stock Exchange for failing to supervise brokers

    Citigroup Fined $16,250 for Violating Cuban Blockade

    Citi Fined $50 Million over Market Timing Violations

    Citi Fined £52,500 over Insider Trading

    Citigroup Fined $2.25 over Documents Violations

    Citi Fined $5 Million over Misleading Reports

    Citigroup Division Fined $275,000 Over Investor Advice

    Citi Fined $400 Million over Fraudulent Research

    Citi appears to be a habitually criminal organization, but that is never mentioned. For fun, Google Citi, and money laundering.

  9. Anonymous


    Anon @ 2:59PM:

    THANK YOU for posting that information. And your question, “Is Citi a good citizen?” is the most cogent and intelligent I have heard during the long-running drama of the “banking crisis.”

  10. Anonymous

    Yves –
    Your posts are excellent and provide a real public service. I wish they were more widely read. They do, however, give rise to a certain amount of aggravation at the way things are being run.

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