Six former private insurers have the political privilege of getting TARPed; added to the U.S. government’s red/to-do list. Although the dollar amounts are minuscule compared to the banking sector, there’s nothing positive for the insurers who end up accepting a single penny of TARP, as the wounds inflicted on TARPed banks have not yet healed.
Billions of dollars of public greenbacks on any private insurance balance sheets could create virulent financial consequences (LNC, HIG). Such unwanted balance sheet issues will continue to ebb and flow with GDP and employment, thus unknown incubations of financial symptoms, duration, and potential mortality rates lie ahead…
Some are concerned that commingling public-private monies will lead to free-market and societal paralysis. Paradoxically, venture capitalists that may have come up with a cure for this psychological paralysis now find their free-market umbilical cords clogged with public regulations if they say “Yes†to TARP. Will any say “yes”?
The long-run corporate capital structure mutations will not be fathomed for many months, perhaps years. This cloud of uncertainty will work to cripple valuations, as yet other micro elements of our financial system are deemed too big to right themselves. Risk capital will likely shy away from the TARPed public-private insurance companies (LNC and HIG?). The stigma of ‘government run’ will induce the talented to exit TARPed doors, severely damaging the ability to attract risk/growth capital.
Perhaps we should in fact blame these insurance CFOs for mismanaging balance sheets and now holding their bloody palms out to government, yet greater shame on Big Brother for endorsing such anti-capitalistic measures and creating what Pimco’s Mohamed El-Erian coined the ‘new normal’. Our Capitalist Pig Bob actually calls it the “new abnormal.”
If the government was to step away from private sector bail-outs today, and not act as the arbiter of “who fails and who succeedsâ€, the U.S.’s capitalistic cow the world has milked for a two hundred years would heal itself and rise up to the healthy “new normal” referred to by the brilliant thinker El-Erian.
