Bailout funds from TARP move to insurance industry

It looked like the balance in the TARP fund would improve as banks paid back the loans they received late last year. But taxpayers will not be that lucky. Insurance companies have been lobbying for aid and now the Treasury plans to give it to them, too.

The federal government must have at least some concern that the failure of a major insurance company would set off a cascade of events that could harm the financial and credit markets. In an attempt to prevent this, it has committed $22 billion to the industry.

According to Bloomberg, "Insurers need the money to quell doubts about whether they can pay claims and retirement stipends after falling stock and bond markets depleted capital." The companies that will get funds include Allstate (ALL), Prudential (PRU), Hartford (HIT), Lincoln Financial (LNC), Principal (PFG), and Ameriprise (AMP).

Why can't these insurance firms raise money in the private markets the way that several banks have? This should be an alternative, especially if they raise debt that has government backing. Using TARP money to solve the problem may be the fastest and most expeditious route, but it probably is not the only one. It is certainly not the most favorable one for taxpayers.

Douglas A. McIntyre is an editor at 24/7 Wall St.


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