Quantcast
Feeds: Email, RSS & Twitter

Get Our Videos By Email

 

8,300 Unique Visitors In The Past Day

 

Powered by Squarespace

 

Most Recent Comments
Cartoons & Photos
SEARCH
« Bailout Comedy Video The Daily Show: Jon Stewart And Brian Williams Discuss Congress, Failed Banks, The FDIC And Twitter | Main | Off Topic Indiana University Basketball: Heartwarming Story Of Student Manager Michael Santa; Of Hoops, Dreams and 401Ks »
Thursday
Mar052009

David Faber CNBC Video: Next In Line For A Taxpayer Bailout: Life Insurance Companies. How Guaranteed Variable Annuities Wrecked a Golden Goose

The insurance business is supposed to be simple and relatively stable.  It's not difficult to sell insurance, collect premiums, hedge your risk elsewhere with re-insurers and then invest the remaining premiums conservatively.

So what the hell happened?  AIG allowed an unhedged fund to operate from within and a tiny 400 person division brought down a giant that employed 125,000.  Hartford, Prudential, Lincoln National, MetLife and Genworth are all suffering the same fate.  All are facing ratings agency downgrades based on capital ratios that fall with the stock market.

The culprit in this mess are guaranteed variable annuity contracts.  A relatively new phenomenom in the annuity business, guarantees on annuity returns are irresponsible and should never have been allowed to exist.  I don't remember which insurance company first got the bright idea to offer a minimum guaranteed return for their investors, but once launched by 1, the other firms soon followed with similar guarantees.

Insurance regulators whistled by the graveyard and made no effort to stop or even slow down the proliferation of these contracts and the rest is history.  Sure, there were no evident problems during the bull market of the past 13 years, but once markets began correcting it was simply a matter of time until these guarantees began to destroy capital cushions at all of the above firms. 

Big deal, you say.  Let these insurers go belly-up if they can't raise new capital.  One small problem.  Millions of Americans have their retirement savings in annuities and millions more have life insurance policies with the above firms.  Our fragile system could not withstand a large run by policy holders to cash out their life insurance policies, as these companies operate like banks and only keep a small percentage of assets in liquid form.

So to prevent disaster, you will soon be asked to give half a trillion or so of borrowed money in order to save these life insurers all because of their goddamned guarantees on variable annuity returns.  They won't ask for $500 billion all at once, because the sheeple might actually notice and complain.  Instead we'll wake one morning soon to hear that Treasury has given $100 billion to the industry and that the problem is now solved.

Does the pattern sound familiar.  It should.  The government assault on taxpayers to rescue big business is always incremental.  Drip, drip, drip until we drown.

Contact the US Treasury and tell them how you feel at 202-622-2960.

Suggest to them the possibility that we cannot possibly create enough government debt to fix the balance sheets in our over-leveraged system.  It's the straight truth and perhaps one day they might finally get it.

 

 

PrintView Printer Friendly Version

EmailEmail Article to Friend

Reader Comments (5)

"Contact the US Treasury and tell them how you feel at 202-622-2960.

Suggest to them the possibility that we cannot possibly create enough government debt to fix the balance sheets in our over-leveraged system. It's the straight truth and perhaps one day they might finally get it."

Go Daddy-O.
Mar 5, 2009 at 5:01 AM | Unregistered CommenterGenevieve
Even the government is catching on that they can't get away with this nonsense forever. The big insurers will be the last straw and , I think the next step is going to be an effective confiscation of all 401(k); 403(b); IRA and other qualified deferred comp accounts --- It will be presented as a "guaranty mechanism / bailout" (i.e. - "we're protecting your savings!") but what will happen is that the govt will take custody of the accounts and "guarantee" you a retirement annuity. This will provide the needed bailout funds without printing more T-bonds that no one wants. They will then inflate the currency and presto. Yes, you'll get your gubmint annuity, but your standard of living in retirement will be pitiful.

Retirement savings locked into tax deferred accounts are too juicy a plum for Uncle Sam to leave alone.
Mar 5, 2009 at 9:57 AM | Unregistered CommenterChubbz De Linquente
Here is a list of Insurance companies in major trouble...

AIG leads the pack with their crook business, then Genworth, MetLife, Lincoln Financial, Hartford Group and the list goes on and on...
Mar 5, 2009 at 10:48 AM | Unregistered CommenterBrasco
@Chubbz

i've heard this prediction before. that would be the embodiment of big brother. are we ready to become argentina and have the private retirement system usurped by uncle sam.

if washington starts to make such rumbling i would imagine the outcry will be far and wide. would make for interesting theater nonetheless.

good post.
Mar 5, 2009 at 12:32 PM | Registered CommenterDailyBail
@Chubbz

"Retirement savings locked into tax deferred accounts are too juicy a plum for Uncle Sam to leave alone."

Great post. The reality of this conclusion scares the hell out of me. I will guarantee you, if this happens, our government will be forced into hiding or we will have an overnight military state to protect them from the civilian population.
Mar 5, 2009 at 1:30 PM | Unregistered Commenterspideydouble

PostPost a New Comment

Enter your information below to add a new comment.

My response is on my own website »
Author Email (optional):
Author URL (optional):
Post:
 
All HTML will be escaped. Hyperlinks will be created for URLs automatically.