The government's

Troubled Asset Relief Program

watchdog wants to know: Why did the

U.S. Treasury

assign Radnor-based

Lincoln National Corp.

nearly $1 billion in TARP rescue money, when Lincoln's business has "little to do with lending to consumers and businesses"?

Lincoln used TARP to finance "expansion" of its annuities and life insurance sales, Special Inspector General Neil Barofsky wrote in his report last week.

Capital is precious to insurers; a little extra hard cash enables them to borrow and spend a lot more. Lincoln officials told Barofsky the company could use each TARP dollar to finance "roughly 20 times that amount" in new insurance and annuity sales.

The former prosecutor doesn't say Lincoln did anything improper. Rather, he says Treasury's decision to fund Lincoln, and a larger investment in rival Hartford Financial Services Group Inc., "was incongruous with the spirit and intent" of TARP's capital program, which was to boost lending to hard-pressed people and companies as troubled banks were cutting back.

If Treasury wanted to use the money for something else, such as bailing out life insurance sales programs, it should have written that goal into TARP rules - as it did with General Motors Co. and Chrysler Group L.L.C., Barofsky added.

Lincoln operates through insurance subsidiaries based in Indiana, North Carolina, and other states. It's best known locally for its 20-year, $140 million name-brand sponsorship of the Eagles' Lincoln Financial Field.

Barofsky says Lincoln has done a great job tracking every TARP dollar it got - proving this can be done by bailout recipients, despite bankers' past claims to the contrary.

To get TARP money, Lincoln bought a tiny Indiana savings bank so it could legally qualify for funds. TARP rules allowed the buyer to add its vast insurance assets to the bank's little loan portfolio and magnify its TARP request.

Lincoln did invest TARP money in corporate bonds and mortgage-backed securities, which "indirectly support the extension of credit to institutions and individuals," as TARP funds should, the report says.

But Lincoln had a "strong" financial position and was "viable without TARP funds," even after posting big losses when investment values tumbled last fall, according to Barofsky.

"Life insurers play a vital role in the efficient functioning of the economy by investing general account assets in long-term securities that support American business and housing," Lincoln spokeswoman Laurel O'Brien told me. Barofsky's report "confirms that Lincoln is following all Treasury guidelines."

The report includes a letter from Assistant Treasury Secretary Herbert M. Allison Jr., who defends the Lincoln and Hartford investments, and notes bank regulators approved both, under TARP rules.

But Allison's defense "misses the point," Barofsky wrote. TARP was supposed to restart stalled credit markets, not give some insurance salesmen an edge.

Swap off

What should the

Philadelphia School District

do with more than $1 billion worth of interest-rate swap agreements, designed to protect school finance costs from rising with U.S. interest rates, now that national rates have fallen to record lows?

"Immediately terminate any active swaps and refinance with conventional debt instruments," Pennsylvania Auditor General (and would-be Gov.) Jack Wagner told the school district in a letter earlier this month.

No way, said the Philadelphia schools' chief business officer, Michael J. Masch.

"We're not arguing with the auditor general whether it's a good idea to enter into more swaps," he told me. But "these swaps were entered into years ago," under the former superintendent, Paul Vallas, and "under very different market conditions."

The district says it would have to pay banks tens of millions to "unwind" the swaps at current rates.

Plus, Masch says the swaps have worked as advertised, earning the schools a net "$12 million since 2004." (School finance officials say the strategy also cost lots less than fixed-bond rates would have cost.)

Masch based his savings claim on the net $17 million in up-front cash that banks paid the school district when it first bought swaps in fiscal 2004, plus gains in 2006 and '07.

But the gains reversed as interest rates fell. For the past two years, the city has had to pay the banks an average $8 million a year under terms of the swaps. Not much protection there.

Still, Masch expects it's cheaper to wait for interest rates to rise, reducing what schools would owe, than follow Wagner's suggestion and pay to "unwind" the swaps all at once.

Should Philadelphia wait?

"Good question," said Steve Halvonik, Wagner's spokesman. While swaps are "gambling with taxpayer money," and "inappropriate" for any town, "the interest rate, we acknowledge, is a factor in determining when, where, and how they dissolve these contracts."