Thursday, May 21, 2009
Insured Capitalistic Failure Looms; Please just say no...
Exactly one week ago, six insurers received the political privilege of participating in TARP, inking onto the Treasury's sticky red column. Although two have rejected, and the dollar amounts are miniscule compared to the banks, we see nothing positive for the entire financial/insurer sector if even one of the six succumbs; especially at this point in time. The flesh wounds inflicted on TARPed banks have not healed, thus the consequences on all are ongoing and unclear. For the sake of true free-market capitalism, we urge every insurer to say no. Even if one insurer says yes, that could spell capitalistic failure for all. Here's why... Billions of public dollars on any one private insurer's balance sheet would create unwanted and ongoing financial consequences (just ask Mr. Jamie Dimon). Unwanted accounting issues will continue to mutate with the ebb and flow of GDP and employment, as there are no guarantees in forecasting economic growth. POTC views LNC and HIG as two candidates most likely to accept TARP and adulterate their ledgers. The potential for valuation erosion and even financial extinction looms for all insurers if even one says yes to TARP, since GDP and employment could falter. Many are concerned that commingling public-private monies will lead to free-market paralysis. Venture capitalists that may have come up with a cure for this financial and psychological paralysis will find their free-market umbilical cords clogged with unknown rules and regs if even one insurer says yes. If either LNC or HIG accept TARP, the entire sector's valuation will be called to Big Brother's boardroom. Long-term corporate capital structure mutations will not be known for many months as GDP and employment weigh. This cloud of uncertainty will work to cripple valuations, as yet other micro elements of our financial system are deemed too big to right themselves. Thus, capital could shy away from the TARPed and unTARPed public-private insurance companies. The stigma of 'government bail-out' will induce the talented to exit TARPed doors, severely damaging the ability to attract capital. Yet the unTARPed insurers will carry huge risk if the economy stalled and at some future point in time turned to the almighty gov't. Perhaps POTC should in fact blame some insurance sector CFOs for mismanaging balance sheet risk and now being on the verge of that sticky red TARP column. Yet greater shame on the politicians for endorsing such anti-capitalistic measures and creating what Pimco's Mohamed El-Erian calls the ‘new normal’. Our Capitalist Pig Bob calls it the "new abnormal." If the government was to step away from private sector bail-outs today, the U.S. capitalistic cow milked by the world for two hundred years might heal itself and rise up to a healthier "new normal". Government cannot insist on taking on private capital risk, as the government is the lender of last resort and ironically deemed too big to fail in our university text books. The words backed by the "Full Faith and Credit of the U.S. Government" come to mind. Well, that statement must be rephrased if this administration continues on its path of adulterating private balance sheets. A more sensible wording today would be: backed by the "Full Faith and Credit of the U.S. Government and the Many too Big to Fail Public-Private Sectors." Long live Wall Street, long live winners and losers, capitalists and socialists, peaks and troughs, bubbles and busts, fear and greed... all necessary micro and macro phenomena. What made the U.S.A. the model capitalistic society - and what enables healthy market cycles - is fewer political strings, not more. Even though this latest economic bust was arguably more costly and psychologically painful than any in the past, we realize every generation goes through a time when the world is coming to an end. Yet the beauty of capitalism is rooted in its risk taking private citizens, not in Bigger Brother government. Take the winners and losers out of the equation and our free-markets will die. Capitalist Pig Bob thinks the reaction from today's D.C. regime is too extreme and will have far worse consequences than allowing markets to right themselves. Entrepreneurial seeds that would have been sown if market forces allowed bankruptcies will be hoarded. Every insurer must say No to TARP, otherwise the gov't scores yet another sector. The current regime is more concerned with social welfare than Darwinian capitalistic evolution and that is troubling. Yes, we know the elephants started this mess, yet two wrongs never made anything right. What do Barack, Tim, Larry, Paul to pay Peter not understand? Midterm elections Nov, 2, 2010. Never has the bell tolled so loudly against Free-Market Capitalism. We'll be logging the behaviors of the donkeys and elephants closely. Perhaps one of those two species is on the verge of Capitol extinction? You decide.
Posted by The Call Team at 2:05 AM