Insured Capitalistic Failure Looms; Once Bank Bitten Twice Shy
Six former private insurers have the political privilege of getting TARPed; added to the U.S. government's red/to-do list. Although the dollar amounts are minuscule compared to the banking sector, there's nothing positive for the insurers who end up accepting a single penny of TARP, as the wounds inflicted on TARPed banks have not yet healed.
Billions of dollars of public greenbacks on any private insurance balance sheets could create virulent financial consequences (LNC, HIG). Such unwanted balance sheet issues will continue to ebb and flow with GDP and employment, thus unknown incubations of financial symptoms, duration, and potential mortality rates lie ahead...
Some are concerned that commingling public-private monies will lead to free-market and societal paralysis. Paradoxically, venture capitalists that may have come up with a cure for this psychological paralysis now find their free-market umbilical cords clogged with public regulations if they say "Yes” to TARP. Will any say "yes"?
The long-run corporate capital structure mutations will not be fathomed for many months, perhaps years. 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. Risk capital will likely shy away from the TARPed public-private insurance companies (LNC and HIG?). The stigma of 'government run' will induce the talented to exit TARPed doors, severely damaging the ability to attract risk/growth capital.
Perhaps we should in fact blame these insurance CFOs for mismanaging balance sheets and now holding their bloody palms out to government, yet greater shame on Big Brother for endorsing such anti-capitalistic measures and creating what Pimco's Mohamed El-Erian coined the ‘new normal’. Our Capitalist Pig Bob actually calls it the "new abnormal."
If the government was to step away from private sector bail-outs today, and not act as the arbiter of "who fails and who succeeds”, the U.S.'s capitalistic cow the world has milked for a two hundred years would heal itself and rise up to the healthy "new normal" referred to by the brilliant thinker El-Erian.
Government cannot insist on public-private capitalistic risk, as the government is the lender of last resort and ironically deemed too big to fail in university text books. The words backed by the "Full Faith and Credit of the U.S. Government" come to mind. Well, that phrase must be reprinted if the government 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 they feel the world is coming to an end. Yet the beauty of capitalism is rooted in risk takers. Take the winners and losers away and our free-market future dies.
Capitalist Pig Bob thinks the reaction from the donkey regime today is too extreme and will have far worse consequences than allowing free-market organic evolution to right itself. Entrepreneurial seeds that would have been sown if normal market forces allowed bankruptcies will now be hoarded. The current regime is more concerned with social welfare than Darwinian capitalistic evolution. What does Barack, Tim, Larry, Paul to pay Peter not understand?
The midterm elections will fall on Nov, 2, 2010. We are monitoring the behaviors of the Washington D.C. donkeys and elephants. Never before has the bell tolled so loudly against free-market capitalism. Perhaps one of the aforementioned species is on the verge of Capitol extinction: you decide.