Remember way back in December when there was a huge stink about whether General Motors and Chrysler should get part of the $700 billion Troubled Asset Relief Program money? After all, that money was just supposed to go to banks. Well, it’s spring now, and the stress test results got the Treasury Dept. thinking that they have enough money to bail out entire new sectors of the economy. Andrew Dowell and Jamie Heller of the Wall Street Journal report that Treasury will shell out $22 billion to big life insurance companies like Hartford and Prudential. Why can Treasury do this?

Technically, many life insurers weren’t eligible for the part of TARP set aside for banks, known as the Capital Purchase Program. TARP is now a collection of different initiatives targeting banks, securities markets, mortgage modifications and aid to auto makers. The Capital Purchase Program is designed to shore up banks’ capital bases by having them sell preferred stock to the government.

The life insurers getting aid managed to become eligible under the CPP either because they already were bank holding companies or because they have moved to obtain that status, such as by agreeing to acquire a savings-and-loan institution.

"These life insurers met the requirements for the Capital Purchase Program because of their bank holding company status, and each applied for CPP capital investments by the deadline of Nov. 14, 2008," said Mr. Williams, the Treasury spokesman. He added that the companies were among "the hundreds of financial institutions in the CPP pipeline that will be reviewed and funded as appropriate on a rolling basis."

Life insurers get the money because they say they’re technically banks. Maybe homeowners facing foreclosure should legally change their citizenship status to that of a bank holding company.

Bailing out these insurers might be a good idea. But money for consumer lending and home ownership assistance programs hasn’t been spent for the most part. Will the actual allocation of money to distressed homeowners and consumers now take a backseat to bailing out the insurance industry?-MB

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