Cramer has endorsed virtually every federal bailout we’ve seen so far, but only for reasons of necessity, not charity. Or worse – letting certain companies off the hook. That’s why he was outraged at Washington for funneling money to Hartford Financial Services Group and Lincoln National.
On Monday, Lincoln announced it would raise $2 billion, $950 million of which would come from preferred shares sold to the government. At the same time, Hartford will take $3.4 billion in bailout funds and sell $750 million worth of new shares. Why would this upset Cramer? Because these two companies took on excessive risk and now they’re getting a free pass.
Think about it: No other insurers are feeding at the federal trough. While the sale of mortgages on the assumption that home prices would trend unendingly higher hurt the banks – no doubt a stupid move – HIG and LNC gambled on the stock market. They sold annuities on which they couldn’t deliver if the stock market went down. To top it off, these firms managed their portfolios poorly, too, but still they got a bailout.
Cramer would have liked to see Hartford forced to sell its property and casualty division in order to meet those annuity payments. And Lincoln? Back when LNC fetched $40 a share, the company said everything was fine. The stock closed just below $16 on Monday. In the very least, both companies should have been made to run off their portfolios.
The potential failures at Hartford and Lincoln had nothing to do with systemic risk, Cramer said. The banks faced an industrywide collapse, which would have led to another Great Depression. These two? They’re getting off scot-free while their peers struggle to stay afloat.
So while Cramer has bristled at the mention of moral hazard through this downturn, he invoked the principle for HIG and LNC. He thinks it’s outrageous that these companies are getting a handout.
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