According to the Wall Street Journal, the United States Treasury Department is finally opening the Troubled Asset Relief Program (TARP) fund for life insurance companies. At this point you may be asking yourself, “Isn’t the TARP only for banks?” Well, according to former Treasury Secretary Henry Paulson, if insurance companies own a bank, then they can qualify for TARP. So of course, several major insurance carriers went ahead and bought banks to get their piece of the pie.
Among those insurance companies asking for TARP money are Genworth, The Hartford, MetLife, and Prudential. Lincoln National alone has applied for $3 billion. The primary reason why such major insurance carriers are applying for TARP is the mortgage-backed securities in their financial portfolios, a.k.a. “Toxic Assets.” These toxic assets are severely affecting the liquidity of these companies (and others not mentioned) leading to ratings downgrades and warnings.
The Wall Street Journal also pointed out that with insurance companies applying for TARP, customers of these companies are likely to see this as a major risk to their investment and cash in their policies to go to stronger companies. If this were to happen on a large scale, then this would force the weak insurance companies to dump their investments, causing the general market to decline further.
One of the hottest debates in our country today is determining whether big businesses should be allowed to fail, or be subsidized until they become financially stable again. We’ve been hearing the debate rage on in the banking and automotive sectors, and it now appears that the debate has reached our doorstep. We want to know what you think, so let the entire community know where you stand on the issue. Now that insurance companies are eligible for a government bailout, should they be given one? |