Sen. Reid's loose lips sink insurance stocks

New York Sen. Charles E. Schumer was accused of speeding the failure of IndyMac Bancorp in July by publicly questioning the bank's solvency.

Now Senate Majority Leader Harry Reid is getting credit for sparking a blistering sell-off in insurance stocks.

MetLife Inc., Hartford Financial Services Group and Prudential Financial Inc. all fell by double-digit percentage amounts today after Reid on Wednesday said the financial-system bailout plan was crucial because a large insurer was at risk of failing.

Reid specifically cited "a major insurance company -- one with a name that everyone knows -- that's on the verge of going bankrupt," according to Dow Jones Newswires.

Today, the Nevada Democrat backtracked. A statement from his office said that Reid was "not personally aware of any particular company being on the verge of bankruptcy" and that "he has no special knowledge about nor has he talked to any insurance company officials," Dow Jones reported.

But with investors already on high alert after the Federal Reserve’s rescue of insurance titan American International Group Inc. on Sept. 16, and with the credit crunch still making funding difficult for even the largest U.S. financial companies, Reid's comments were the equivalent of pouring gasoline on a grease fire.

MetLife plunged $7.19, or 14.9%, to $40.96; Hartford dived $12.20, or 32%, to $25.91; and Prudential slid $7.15, or 11%, to $57.65.

And no one can blame "short sellers" because all three of the stocks are covered by the Securities and Exchange Commission’s temporary ban on short sales of financial issues.

In the credit-default swap market, where investors buy and sell protection against bond defaults, the cost of insuring against defaults by the three companies rocketed to record levels, Bloomberg News reported.

Insurance companies’ stocks have been sliding for two weeks as the credit crunch has worsened. Investors also are worried about the sinking value of the companies’ investment portfolios, as stocks, corporate and municipal bonds have been pounded since August.

On Wednesday, Hartford issued a statement saying it was "confident in our financial strength." MetLife said in a statement today that it was "financially sound" and "fully able to meet all its obligations."

In late June, Democrat Schumer made public a letter he had sent to federal bank regulators, expressing concern that Pasadena-based IndyMac Bancorp was on the brink of failure.

When regulators seized IndyMac in mid-July, they accused Schumer of fomenting a panic run on deposits that made the bank’s collapse inevitable.

Photo: Sen. Harry Reid (Jay Mallin / Bloomberg News)

Comments

[JS]

One could opine that the Democrats have achieved the trifecta of "duh" - Schumer and IndyMac, Pelosi and the bailout bill round 1, and now Reid and insurance companies.

One could as-easily opine this is a Democrat strategy to make "things" worse, so those that vote with their wallets will run from the Rebulicans.

Nope, probably just duh.

[william]

Yea! we need to sink these insurance companies. there to dam big, and controll to much of our lives. I vote to sink the insurance companies. how about all of us workers..

[Chris]

A comment like this from a senior Senator is more than an embarrassment and more than just unacceptable. This type of rash and irresponsible behavior from someone that should certainly know better seems more calculated and even sinister. I cannot understand why there has not been an immediate call for not only the resignation of Harry Reid but also a full investigation into he and all his friends, colleagues and families investment activities as something is surely amiss here. It may sound a bit elementary, but its hard to believe that anyone, let alone a senior Senator, could be that stupid. I regret the term "stupid" but it few other words fit to print come to mind. Mr Reid'scomment not only had the immediate impact on the insurance company stocks, and their investors, mostly main street America in one way or another, but also the far reaching impact on those other institutions who hold this stock. AXA, Barclays, UBS, Vanguard, Alianz all hold large stakes in the Hartford (HIG) who saw 32% of their investments evaporate because of his gross negligence. These are many of the other organizations that are vital to the survival of the US financial system, whose balance sheets are now that much more vulnerable thanks to our Senate Majority leader. Which, in turn, damages the thousands of companies invested in these institutions. The domino effect here is mind boggling and will not be fully realized for some time.
That's not even touching on the millions of shares invested by mutual funds in these insurers as well as the companies that will be dominoed by the resulting losses.
People need to held accountable for the actions and their statements, especially those in power. Should Mr Reid find himself out of job, disgraced and on the business end of a nasty and in my view, legitimate, lawsuit for his gross negligence, I for one will applaud.

[Doug in Toronto]

If an individual Senator is able to bring down major corporations or even whole industries (as is claimed), then why even bother having an election for President?? These guys can mess things up just as badly as whoever wins in November will, and all the money you'd save on primaries, attack ads, and the other attendant silliness could be better spent on things that matter, like Congressional perks...

[Maggie Knowles]

This is ridiculous, the only thing bringing down the economy, companies, etc. is bad accounting and risk taking. Thank you congress, senate, and wall st.

[Joseph The Real Estate Guy]

I think it's very evil to bring the economy down in your thirst for power!