Life Insurance Blog | Efinancial

Insurance Bailout. Putting the Government Behind Your Protection

At Efinancialblog we keep a watchful eye on all things financial, especially the insurance industry.

The recent federal intervention in the financial services industry is well known when it comes to banks.  An underreported fact is that, as of last month, the Treasury Department has also extended bailout funds to help bolster America’s insurance companies.  While federal bailout funds were originally approved to help banks alleviate toxic loans, the Treasury Department has used such funds to help industries such as the auto industry and now the insurance industry significantly strengthen their financial status.

One such insurance company is The Hartford Financial Services Group Inc. Hartford announced that the Treasury Department determined they were eligible for $3.4 billion from the Troubled Asset Relief Program.  Additionally, Allstate Corp., Ameriprise Financial Inc., Principal Financial Group Inc. and Prudential Financial Inc were also determined to be eligible for bailout money, though the amounts have not yet been disclosed.

Some insurance companies are reporting surpluses, such as MetLife, and have declared that they are not going to ask for bailout money.

While they are not banks, insurance companies have been negatively affected by the financial crisis.  Stock portfolios for many institutional investors have decreased significantly in value and life insurers own roughly 18% of all corporate bonds in America.  Moreover, life insurers have seen their own stocks drop dramatically, so there was reason to be concerned they could fall below federal requirements for liquid assets.  These are the factors that made the insurance companies eligible for bailout money.

Treasury Secretary Timothy Geithner told a congressional oversight panel recently that the TARP fund Congress approved last October now has $110 billion left in the fund that has not been committed.

Do you think bailout money should be used for insurance companies?  How should the Treasury spend the last 110 billion dollars?  As always, your comments are welcome!

To get a Term Life Insurance Quote or Research how to Buy Life Insurance Online visit Efinancial.com

Can We Gain Without Pain?

America’s next president, and its newly elected congressional representatives from all fifty states, will soon confront the challenges of a daunting financial crisis, the likes of which we have not seen since the Great Depression. The odd part of the campaign trail leading up to Election Day is that the candidates for political office have been rather soft-spoken about remedying the problem. Campaign pronouncements have been muffled and candidates adverse to describe how each of us will need to exact some degree of personal sacrifice during these trying times. The implications that have been made during this political season suggest that merely a minor change will make a major difference.

Over the past several years, the federal government has cut taxes in the wealthiest percentiles, financed two wars, and recently authorized vast investitures to shore up our financial system. The “make good” on these commitments has seemingly been passed along to future generations to handle, even while modern “baby boomers” have Social Security and Medicare entitlements coming due.

Tax cuts alone will not stimulate the necessary solution. Nor will tax rollbacks, or even closing tax loopholes. A new sense of purpose and a new sense of urgency seem warranted. Across the nation, divided Americans will need to exert their will and marshal their efforts as Americans united. What shall our government ask of each of us and what must we ask of ourselves?

To get a Term Life Insurance Quote or Research how to Buy Life Insurance Online visit Efinancial.com

Where is the Bailout Money Going?

The $700 billion dollar federal bailout plan is revolutionary in size and scope, including the involvement of the federal government in the banking system as preferred, albeit non-voting, shareholders. Many have been fearful that a mismanaged cash infusion would line the pockets of well-off bankers rather than benefit the financial well-being of the average American on “Main Street.”

According to a recent New York Times article, the additional funds are, thus far, not being used to foster increased lending but, in large measure, to buy up other banks. JP Morgan Chase is a case in point, receiving $25 billion dollars from the Treasury and using the funds to acquire smaller, ailing banks.

Such activity is not only being condoned by the U.S. Treasury, but actually encouraged. Treasury Secretary Paulson, among others, has promulgated tax code that allows the costs of mergers to be tax deductible, so taxpayers are footing the bill for large banks to pursue acquisitions, a macroeconomic benefit with far less obvious benefit to the average citizen.

Critics and cynics are given to wonder whether fewer banks are an asset or a liability for the US economy? Or is a consolidation of smaller, insolvent banks a smarter solution than simply buying up toxic loans and assets? If America behaved like England in this crisis, conditions of the bailout would require that any money given to banks be applied towards loans. Without these sorts of guarantees, will people lose faith in an economy that is doing poorly? We invite your discussion.

To get a Term Life Insurance Quote or Research how to Buy Life Insurance Online visit Efinancial.com

Keynes’ Economic Theory: A Historic Solution to our Modern Crisis?

History is a great teacher.

Over 70 years ago, economist John Maynard Keynes lived through the troubles of the Great Depression and came up with a solution for such a crisis. What did Keynes’ figure out?

During the Great Depression, monetary policy became ineffective and institutional failures were triggered by falling asset prices. Keynes opposed the conventional wisdom of the time. He was not content to think that the economy would self-correct. Instead, Keynes realized that during economic downturns, people and businesses alike have a propensity to save.

In a time of financial crisis, the great irony is that saving can have a negative effect on a poor economy. When individuals save, they aren’t buying products from businesses, and businesses lose revenue. The same is true for businesses: if organizations save their money, instead of investing in new technology, materials products and labor, other companies lose revenue. It is a vicious cycle that tends to exacerbate the problems of an economic downturn.

As an economist, Keynes studied incentives in an effort to understand how to overcome the tendency to save. What he realized is that instead of attempting to keep people from saving, the government should inject money into the economy to compensate for the absence of regular investment. Thus, during recessions, Keynes recommended the government “deficit spend.” If the government worries about receiving enough revenue, he posited, then it will be highly inhibited in how it loosens capital, and therefore will not be able to stimulate the economy out of trouble.

This should be positive news for those who are worried today. Not only do we seem to have the knowledge as to how to get out of this potential recession, but the solution has already begun to be implemented. The bailout package, while it may have its flaws, represents the fundamentals of Keynes’ theory. The infusion of capital is an attempt to stimulate us out of this crisis.

To get a Term Life Insurance Quote or Research how to Buy Life Insurance Online visit Efinancial.com

Will the Bailout Help the Economy?

Over these last several, angst-ridden days, the red hot political topic has been the financial crisis that looms large over the American landscape. The $700 billion dollar bailout authorized by Congress begs a great many questions of the American taxpayer and, so far, this “perfect financial storm” has provided precious few answers.

Will the $700 billion relief plan bridge the chasm, or does it address just the tip of a titanic iceberg? Should the American taxpayer be held responsible for Wall Street institutions or is the rescue effort a question of survival, fundamental to buttressing America’s economic foundation? Is there a stimulus to energize market confidence and is it psychological, political or financial?

The actions of the U.S. Treasury and the Federal Reserve appear on the face of it to be justifiable. The entities which the government has moved to protect have been those whose failure would trigger a chain reaction in both our domestic and the world’s global economy. As some would theorize, when a debt-fueled investment bubble bursts, financial institutions look to divest their bad debts. When every financial portfolio has the same goal, at the same time, turmoil can ensue.

Economists also calculate that the problem can only be solved if someone is willing to buy up, or pay off the debt that banks and investment companies are desperately trying to liquidate. The U.S. Treasury seems to be the ideal actor to perform this function, since it is, practically speaking, the only institution with enough buying power to handle the size of the transaction. The US government is also the only administrative body capable of organizing such a monumental effort at a systematic level.

Another looming question is the issue of regulation. Lawmakers of both parties have made it clear they do not want to give Wall Street a “blank check,” nor do legislators wish to sanction excessive amounts of money that may go end up as executive salaries or severance packages. Finally, the trillion dollar question is whether the bailout is merely a band-aid? How can the government and the fragile , fractured mortgage market protect future homeowners who see the value of their assets diminish and face default and foreclosure.

These are the hot topics that confront all of us in the days ahead. We invite your comments.

To get a Term Life Insurance Quote or Research how to Buy Life Insurance Online visit Efinancial.com