Wednesday, April 8, 2009

Why Not Bail Everyone Out?

Because at this point, we're giving away money to banks and automakers, why not life insurance companies too?
The Treasury Department has decided to extend bailout funds to a number of struggling life-insurance companies, helping an industry that is a linchpin of the U.S. financial system, people familiar with the matter said.

The department is expected to announce the expansion of the Troubled Asset Relief Program to aid the ailing industry within the next several days, these people said.

The news will come as a relief to a number of iconic American companies that have suffered big losses made worse by generous promises to buyers of some investment products. Shares of life insurers have fallen more than 40% this year. Their troubles led to a string of rating-agency downgrades that, in a vicious cycle, made it more difficult for some insurers to raise funds.

The life-insurance industry is an important piece of the U.S. financial system. Millions of Americans have entrusted their families' financial safety to these companies, so keeping them on solid footing is crucial to maintaining confidence. If massive numbers of customers sought to redeem their policies, it could cause a cash crunch for some companies. And because insurers invest the premiums they receive from customers into bonds, real estate and other investments, they are major holders of securities. If they needed to sell off holdings to raise cash, it could cause markets to tumble.

Here's the obvious question. If what Treasury and the Fed are doing is supposed to be making the economy better and we've hit bottom, how come we keep having to expand the bailouts?

The answer is quite simple. While the worst may be over for some sectors of the economy, the pain is just getting started for virtually everyone else. The financial meltdown is spreading to the rest of the economy. The financial nuclear reactor may not have exploded, it just irradiated everything around it, and now that sickness is going to take a heavy, heavy toll on the economy.

It's going to get a lot worse, and soon.

No comments:

Related Posts with Thumbnails