In the news:
“The Hartford Financial Services Group Inc. was the first to disclose Thursday that it had been notified by the Treasury Department that it was eligible for $3.4 billion from the Troubled Asset Relief Program, or TARP. Lincoln National Corp., which commonly goes by the name Lincoln Financial Group, said it has been initially approved for a $2.5 billion injection from TARP’s Capital Purchase Program.
Allstate Corp., Ameriprise Financial Inc., Principal Financial Group Inc. and Prudential Financial Inc. also are among insurers receiving preliminary investment approval, Treasury spokesman Andrew Williams confirmed. He declined to disclose the amount of investment each company will receive.
The total capital injection into the six companies will be less than $22 billion, The Wall Street Journal reported, citing a person familiar with the situation…”
My Comment
22 billion might not seem like a lot, but insurers’ holdings have taken a big hit in recent months, it seems, and a cut in their ratings would have been likely once their assets fell below a certain level.
So you have government ownership of large parts of the housing market (which itself covers, in all its aspects some 30% of the economy), extensive government intervention in banking and insurance, government run trade, government run schools and colleges, government run social security and medicaid and medicare, and what does the left think the problem is? The free market!
I was reading somewhere about the loan modification bill that caused so much media furor with Rick Sentelli and his outrage, which essentially was bankruptcy judges rewriting the contract agreements. What I understood was that that arrangement would basically help the bank by allowing them to not go through the foreclosure but somehow repricing the house or reselling it. But currently the banks cant do that as the make housing loans into instruments and now the senior owner of that paper would get essentially 90-100 cents on the dollar while the junior investor would get nothing. So basically it had nothing to do with sticking it to the predatory banker but helping them make money by rewriting the contract laws and essentially robbing the
shareholder who has less clout with the govt. That is how I understood it , whats your take on it?
Of course. Anyone who thought otherwise is either very naive or is getting something out of it and doesn’t care about the moral hazard involved.
It was the same thing in Russia – read Ann Williamson on the rape of Russia...
The institutional money managers will be on the hook if their portfolios go south .
Bond arbitrage (fixed income trading) is a major source of revenue for many of the big houses.
Demands for money are always couched in populist terms and appeal to each person’s innate desire to get something…
Here’s what I wrote on the Fannie bail out, where the govt. also wiped out the shareholders in favor of senior debt holders:
Paulson Pu(t)sch (http://www.lewrockwell.com/rajiva/rajiva10.html)
“Why were Fannie Mae and Freddie Mac shareholders, including holders of preferred stock, punished? Why were their claims wiped out, while the claims of bond-holders were coddled? Senior debt holders were given back 100% on the dollar. Junior holders also did not suffer proportionately. Instead, losses were borne almost entirely by equity holders. Senior debt holders include investors like Bill Gross, manager of PIMCO funds. What does it say that the government is treating them preferentially and short-changing other shareholders? Isn’t that why no private investors have been willing to step in to infuse cash into other strapped firms? In other words, didn’t your so-called rescue of Lehman and Freddie actually botch the process of recovery, as Anatole Kaletsky argues?”