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Hartford and AIG – ghoulish results

user profile picture Chris Martenson Oct 31, 2008
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Happy Halloween! 

One of my kids is going out dressed as the queen of hearts…only the front flips open and it says in blood red inside "Your 401k – down 50%!"

We’ve already decided to split any candy that spills to ground between the kids and dad.

More frightening yet are the "next shoes" that lurk in the insurance industry.  Like the now blood-red pension industry (great summary here by Mish),  the insurance industry took all the premium money and sought a slightly better return by placing it in financial exotica. 

At first, AIG said they needed, maybe, $20 billion, then $60, then they walked off with an $85 billion government bailout package.  Now?  Don’t ask.

Fed Adds $21 Billion to Loans for A.I.G.
The American International Group said Thursday that it had been given access to the Federal Reserve’s new commercial paper program, allowing it to reduce its reliance on a costlier emergency loan from the Fed.

The company said it would be able to borrow up to $20.9 billion under the new program, raising its maximum available credit from the Fed to $144 billion under three different programs. The credit includes an earlier emergency loan of $85 billion from the Fed that carries a much higher interest rate.

Three different programs?  $144 billion?  It’s hard not to get the impression that they are just making it up as they go along.  

Now I’ve read recently in a few spots, that some think that all this Fed lending will not be inflationary, but I think it will be.  The reason?  I think that AIG and several other companies are going out of business.  This means the Fed will now hold the bad paper of failed companies.  Meaning they will end up holding it forever. 

So the "trade" there was hot cash for bad debt.  The debt will forever remain the possession of the Fed, but the money will have run off somewhere to have a good time.

In a recent Martenson Report I laid out several insurers that I thought were in trouble, including Hartford Insurance Group (HIG).  Yesterday, HIG lost 50% of its stock price on one fell swoop.

Hartford Financial loses over half its market value
SAN FRANCISCO (MarketWatch) — Hartford Financial Services Group lost more than half its market value Thursday on concern the insurer may need to raise more capital.

The company reported a big third-quarter loss late Wednesday and said that it couldn’t gauge the amount of extra capital it has because of market volatility.

HIG can’t "gauge the amount of extra capital it has"?  Reading between the lines, we can guess that they were not investing in safe bonds and other traditional fare that your grandfather’s insurance company would recognize.

In fact, it is no stretch at all to conclude that HIG was hip deep in derivatives.

At any rate, the insurance crowd is next on my list for a government handout…a big one.  And then state and federal pension funds, which also gambled on exotica and lost.

The idea that we can get out of this without a major inflationary event at some point over the next few years is rapidly diminishing.

And one last thing….

 

 

Boo!