- The Washington Times - Wednesday, April 15, 2009

COMMENTARY:

Is bailout nation about to strike again? Sure looks like it. According to a bunch of Page One news stories, life-insurance companies are about to get TARP'ed. This is nuts.

The public is clamoring for an end to TARP and bailout nation. That's a key message coming from the heartland tea parties cropping up spontaneously across the country. This is turning into a real populist uprising against rising taxes (especially state, local and property taxes), the Troubled Asset Relief Program and all the federal bailouts - and the trillions of dollars in deficits and debt being used for financing.

If Team Obama ignores this uprising, it has a political tin ear.

While commercial banks of all sizes are increasingly profitable and want to pay back their TARP money, the Treasury Department proposes extending bailout funds to life-insurance companies, most of which are in no danger of failing. And for those that are in danger, surely it's time for a bankruptcy proceeding instead of the infusion of more taxpayer money.

We already are on the hook for banks, General Motors Corp. and Chrysler LLC and lube jobs for guaranteed government-backed GM warranties.

The banks themselves may go to war against an Obama administration that wants to maintain control over the big-bank sector and prevent these financial institutions from paying down TARP. It's as if Team Obama is saying, “Don't worry about the taxpayers. Just keep expanding government control over the economy.”

And now comes life insurance. When will this country stop saving losers and start rewarding winners?

Meanwhile, no one has proved that life-insurance companies constitute a true systemic risk to the financial system. No one. This is nothing but a bailout. Actually, it's a precautionary bailout because none of these insurers has failed.

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 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 10 years or more. And the break-even point is something like 600 on the Standard & Poor's 500 index, which is now above 840.

Not all life insurers would be eligible for bailout funds - only those that own federally chartered banks or thrifts, like Hartford Financial Services Group Inc., Genworth Financial, Prudential Financial Inc., MetLife Inc. and Lincoln National Corp. However, a recent Wall Street Journal article indicates that a number of life insurers are doing very well and still have triple-A gilt-edged ratings. These include MassMutual Financial Group, New York Life Insurance Co., Northwestern Mutual Financial Network and TIAA-CREF.

A senior executive at a large Midwestern insurance company e-mailed me to say he's against an insurance-industry TARP: “Those that are in trouble, including Conseco, Genworth, Phoenix, The Hartford, etc., should go the way of the dodo bird. Imagine some Treasury bureaucrat investing your 401(k) or retirement-plan money, or worse, setting prices on your insurance policy.”

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 insurers might get from TARP. And with members of Congress on recess - and undoubtedly hearing an earful 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.

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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