Posts filed under “Really, really bad calls”

Why Are We Bailing Out Insurers?

Will someone please explain to me why we are giving $22 Billion to Insurers?

“The Treasury Department will make federal bailout funds available to a number of U.S. life insurers, acting on the embattled sector’s long-running effort to get government help. The Treasury is prepared to inject up to $22 billion into the insurers under the rescue plan launched last fall as the Troubled Asset Relief Program, said a person familiar with the matter.

The capital infusions mark the first new round of federal rescue funding since the biggest banks got more help around the turn of the year. Aid for the struggling life-insurance industry was expected, but the companies had been waiting for weeks since The Wall Street Journal reported in early April that the Treasury had decided to give federal money to qualified companies in the industry. As far back as November, some companies were taking steps such as agreeing to buy savings and loans in order to become eligible . . .

Many life-insurance companies, like others in the financial sector, got caught carrying too much risk when the financial crisis hit. Some were hurt by their variable-annuity businesses, under which they sold products often linked to equity markets that promised minimum payouts even if markets fell. Insurers also lost money on investments in bonds, real estate and other assets that back their policies.”

Why?

Why do insurers, who have fiduciary obligations to manage their assets prudently, require taxpayer largesse?

Yet even more moral hazard is being heaped upon us.

This is totally unacceptable. If you did not manage your assets prudently, if you failed to employ appropriate risk management procedures, and if you come to the government teat for aid, there must be a heavy cost and major strings attached:

  1. Bailout Monies need to be eventually repaid;
  2. Entrenched management needs to be fired;
  3. Excess bonuses must be clawed back;
  4. Shareholders (both public and mutual) need to suffer for their bad investment;
  5. Competitive firms that ran their business properly should not be disadvantaged.

Why would we give money  managers with a demonstrated inability to manage it properly? Why would we reward shareholders who made losing bets? Why are we punishing well managed, prudent funds? THIS IS OUTRAGEOUS.

These are independent companies who should be able to raise capital on their own. At the very worst, the most I believe that should be authorized for these firms are loan assistance/guarantees. Even that is problematic.

Here is where $22 billion in Corporate Welfare is going:

Hartford Financial Services

Prudential Financial Inc.,

Principal Financial Group Inc.

Lincoln National Corp.

Allstate

Ameriprise Financial

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Source:
U.S. Slates $22 Billion for Insurers From TARP
ANDREW DOWELL and JAMIE HELLER
WSJ, May 15, 2009

http://online.wsj.com/article/SB124234565889921705.html

Category: Bailouts, Corporate Management, Markets, Really, really bad calls, Regulation, Taxes and Policy

Yet Another Greenspan Housing Bottom Call

“We are finally beginning to see the seeds of a bottoming [in the housing industry. The U.S. is] at the edge of a major liquidation [in the stock of unsold properties, which may help to stabilize prices].
—Alan Greenspan, May 12 2009

“I don’t know, but I think the worst of this may well be over.”
—Alan Greenspan, October 2006

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Why does the public — and the Press — constantly seek out reassurances from the same people who misled them time and again in the past?

That was the question on my mind as I pondered yet another declaration from Alan Greenspan that the Housing Market has bottomed. That he has consistently made similar such statements before is cause for doubting him here. That these prior bottom calls were as far back as 2006 is cause for ridicule.

Few people have been worse than Greenspan in analyzing the Housing market. In fact, the only person / group I can think of with a consistently worse track record than Greenspan’s of analyzing the housing market was the group he spun his foolishness to yesterday: The National Association of Realtors.

Indeed, consider this golden oldie from David Lereah, the NAR’s chief economist, circa December 2005:

Home sales are coming down from the mountain peak, but they will level out at a high plateau, a plateau that is higher than previous peaks in the housing cycle.

That 2005 declaration, made 5 months after Hosuign prices had topped out, was typical of the reality denial we saw from the NAR over the entire housing cycle. They continuously got it wrong, spinning all data, good or bad, in a shamelessly self-promotional manner.

That this group of blind flacks paid Greenspan $100,000 plus to spin them lies is somewhere between ironic and pathetic. At least it wasn’t taxpayer monies . . .

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NOTE:  These older Greenspan/Lereah quotes were were pulled from Chapter 21, The Virtues of Foreclosure, Bailout Nation.

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Category: Real Estate, Really, really bad calls

McCain & Shelby: “Let Insolvent Banks Fail”

“Close them down, get them out of business. If they’re dead, they ought to be buried.” -Richard C. Shelby, the senior Republican on the Banking Committee, on ABC’s “This Week” > Thus, the strangely inverted world of bank bailouts continues. Republicans who started the entire lurch towards Socialism under George W. Bush at least understand…Read More

Category: Bailouts, Credit, Legal, Politics, Really, really bad calls

iBanks Grabbed $50 Billion in AIG Bailout Cash

Yesterday, in Backdoor Bailouts for Goldman Sachs?, we noted that GS, as well as Morgan Stanley, Merrill Lynch, and Deutsche Bank, were all made whole on their bad bets with AIG. That’s right, what was misleadingly described as systemic risk turned out to be in large part little more than a counter-party bailout — money…Read More

Category: Bailouts, Corporate Management, Finance, Legal, Markets, Politics, Really, really bad calls

Was the ’00-03 Crash Bush’s Fault? ’09 Obama’s?

The incessant parade of bad advice, partisan quackery and general ignorance about the way markets work is fascinating to watch. I used to find it annoying, but now I simply use it as a way to make money. Just find the dumbest of the group, and take the other side of their trades. The latest…Read More

Category: Bailouts, Economy, Financial Press, Markets, Psychology, Really, really bad calls

Good Money After Bad: U.S. to Up Citi Stake

Here we go again: It looks like you and me and that guy behind the tree are going to be on the hook for a few billion more dollars: “Citigroup Inc. is in talks with federal officials that could result in the U.S. government substantially expanding its ownership of the struggling bank, according to people…Read More

Category: Bailouts, Corporate Management, Credit, Politics, Really, really bad calls

Experts, Crashes, Media, Skepticism

There is a surprisingly interesting article at Money Magazine on why so many so-called experts utterly missed the market crash, credit crisis, and housing collapse. Its an interview with Philip Tetlock who is (with no small amount of irony), an expert on experts. He is a professor of organizational behavior at the University of California-Berkeley’s…Read More

Category: Economy, Financial Press, Markets, Psychology, Really, really bad calls

Synchronized Boom, Synchronized Bust

Mark Faber wants to do nothing and let the free market correct the excesses. I agree — but I know its only a pipedream. Given we have already had unprecedented interventions, the let-the-market-correct ship has already sailed. And, no US politician has the stomach for that. Excerpt: “As a consequence of this expansionary cycle, the…Read More

Category: Bailouts, Really, really bad calls

If Bankers Were Firemen . . .

Very amusing Pat Bagley cartoon, via The Salt Lake Tribune > > http://extras.sltrib.com/bagley/Archive.asp?Vol=content&Num=10

Category: Bailouts, Credit, Derivatives, Humor, Markets, Really, really bad calls

A Cyclical Look at P/E Ratios

Here’s another brutal look at where P/E rations might end up going before this is all over, via Bob Bronson: I am very skeptical of earnings forecasts, because they have been so terrible for most of my adult life. The conspiracy of optimists always seems to overestimate future earnings. Trailing earnings are real data, not…Read More

Category: Earnings, Markets, Really, really bad calls, Technical Analysis, Valuation