StanCollender'sCapitalGainsandGames Washington, Wall Street and Everything in Between



Are You Happy Or Angry That The Government Has Made 8.2% on TARP?

20 Oct 2010
Posted by Stan Collender

This story from Bloomberg reporters Yalman Onaran and Alexis Leondis is making the rounds in the blogosphere today.  According to an analysis conducted by Bloomberg...

The U.S. government’s bailout of financial firms through the Troubled Asset Relief Program provided taxpayers with higher returns than they could have made buying 30-year Treasury bonds -- enough money to fund the Securities and Exchange Commission for the next two decades.

The government has earned $25.2 billion on its investment of $309 billion in banks and insurance companies, an 8.2 percent return over two years, according to data compiled by Bloomberg. That beat U.S. Treasuries, high-yield savings accounts, money- market funds and certificates of deposit.

But as the story also notes, "Democrats are struggling to turn those gains into political capital..."

How is it possible that an investment that makes the federal government look like it has the smarts of Warren Buffet is such a hard sell with voters?

Part of the reason may be that voters think the 8.2 percent is coming out of their rather than the financial institutions' pockets.  At least that's what I heard at several focus groups I observed earlier in the year.  The participants in the focus groups bristled when they were asked about the profits the government was making on TARP.  Rather than be happy about it, they insisted that the banks were repaying the TARP funds and interest with higher fees that customers were being charged rather than by reducing other costs or lowering dividends.

It was almost a perfect example of a total no-win situation.  They would have been angry if the government lost money and they were definitely angry that it was getting paid back.  They would also have been angry if the government had made no attempt to deal with the situation, that is, if there had been no TARP, and they were clearly irate at everyone who had anything to do with it being enacted.

Because of this, not only is turning the latest TARP results into political capital always going to be difficult, but just keeping it from being a complete negative may be impossible.

The voters in the focus group

The voters in the focus group were perfect 21st century Americans -- uninformed and angry, not about policy, but just because there was a problem. Fixing it makes them mad, not fixing it makes them mad.
What that means of course is that no sane pol will try to fix any problems, but will work very hard to blame the problems on somebody else. Then the voters will whine about everything is getting worse.


How about the simple fact

How about the simple fact that we completely embedded moral hazard in the financial sector, and all it took was a modest return of 8.2%?


We wuz robbed

Why should the banks have made out like bandits and we got only 8.2%? We should have taken ownership of the banks, recapitalized them, and sold them at a hefty profit.


8% is nice but no

8% is nice but no compensation for the banks short-sheeting the economy now that they're flush again.


What big accounting you have

"Two years later TARP’s bank and insurance investments have made money, and about two-thirds of the funds have been paid back."

1. 2/3rds have been paid back. Treasury made money. [One of these does not belong with the other]

"...will probably earn $11 billion in the end, taking expected losses into account, according to Treasury estimates."

2. If we acknowledge the losses we don't have to account for them. [Awesome]


Must have been ignoring some things

My first reaction to reading your post was that the calculation must have been ignoring the bailouts of Fannie and Freddie, and the transfer of wealth from savers to the banking system. Then I went and read the article, and saw that the reporter made those points as well.

My second reaction was, "Great! it must be time to bring back mark to market and start raising interest rates so savers can start being rewarded again, since the banks are so healthy now." I'm guessing that will not be the reaction, and I'm guessing that is because the banking system isn't nearly as healthy as pretending that TARP had a positive return makes it sound.

I was against TARP because as it was originally proposed, it was a flat out transfer of the mortgage losses from the banks who deserved to take them to the Treasury, and it wasn't nearly big enough to complete the job. As it was implemented, it didn't even do that; most of the losses are still hidden away by the banks, and have yet to be taken. TARP was just a temporary prop. The banks were really saved in the short term by removing mark to market, and in the long term by transferring wealth from savers to the banks.


What about the social costs?

So the TARP makes money for Treasury.

But the foreclosure doom has not worked it's way through the economy. Unemployment is still rampant, job growth slow to stagnant. How does the cost of safety-net social programs compare with the profits of TARP? The loss of real-estate values?

Dems are having trouble taking credit for TARP profit because the losses elsewhere in the books, losses triggered by the fecklessness at the root of TARP in the first place, will take a generation to recover. The economy is bigger than TBTF bank balance sheets.


Angry

I'm unhappy about the 8% dividend because the government will waste it on fraud or harmful policies. This is the lesson of history, not just my opinion. War on poverty...lost. Peace Corps...wars aplenty. The UN...a bad joke. See what I mean?


Peace Corps??? REALLY?

Did you really just assert that because there is still war that the Peace Corps is a failure? Please... go on.
-Kevin
Bolivia '03 - '05


Blame the Media

the fact that people are unaware of this - or that they're unaware that TARP was enacted under bush, not obama, or, hell, the fact that a large percentage of americans think the president is a socialist muslim from kenya - points to a MASSIVE failure on the part of the media to do its most basic job of keeping the public informed.

take the socialist issue. by most rational measures, obama is not only not a socialist, he's in fact a slightly right-of-center politician. david cameron, who is the "conservative" prime minister of the UK, is slashing military spending, raising taxes and increasing funding to the national health service. in other words, on an american scale, he's to the left of most democrats except maybe dennis kucinich.

but when the republicans call obama a socialist, CNN et al. don't point out that this is factually incorrect, they simply present the talking point as written, all in the name of "balance."

put another way, if the sun were shining, they'd probably have a guy on who claimed it was raining, just to present "both sides of the story." but facts don't have multiple sides.


put another way, if the sun

put another way, if the sun were shining, they'd probably have a guy on who claimed it was raining, just to present "both sides of the story." but facts don't have multiple sides.

--------------------------------------------------------------------------------
There are lies, damn lies and statistics (facts)
The government made 8% plus however, like most "tax the rich not the middle class/poor" mindsets, they fail to realize that coporations/banks don't pay taxes. They pass their taxes off to consumers by making them pay more for services. I haven't had a late payment in my life, however my credit card rates went up so the bail out bank that owns the card company can regain some of that money. So not only did tax payers float the banks a loan via bailout, but they are paying it back a second time via higher interest rates. There is the other side to your "fact".


That's leaving out a little

It was an 8% return, but ONLY counting those banks that have paid back. 1/3 of them haven't paid back at all. Still a net loss, so far. Even if it does make a little profit, the damage done far exceeds the benefit. TARP and the idiot financial "reform" bill have all but guaranteed that the giant banks will happily go out on a limb again, because the gov will bail them out again.


TARP is better than alternatives

The TARP debate only demonstrates how the public so desires things to be simple that are not simple. Our government had to take initiatives to prevent collapse. The main trouble is the Republicans have prevented President Obama and the Democrats from taking the truly historic steps our country needed - a bigger stimulus, and a single-payer health system. People who are hurting all feel they've been ignored. As it stands now the right-wingers will ensure that the USA will wobble on down in its decline like the Roman Empire, unable to admit that activist government is a necessary power to offset the power of the corporations who are taking ever larger control of America. They are now "persons" like you and me.


Happy, but only grudgingly so.

Part of the anger is because (instead of passing it when Goldman Sachs told them to pass it :) Congress held it hostage until they could add an extra $150B in pork for themselves. Here's a representative news article from a few months after the dust had settled:

http://www.bloomberg.com/apps/news?pid=newsarchive&sid=amp5wXx35fkc

Delaying passage for $150B in pork is something you're entitled to do with bills on which timing isn't critical (f'rinstance, health care reform or an omnibus spending bill :), but not when you're trying to prevent a global recession from turning into the Great Depression 2.0.

Yes, to the surprise of many, TARP worked, and considering the alternative, it was the right thing to do for the economy, *even considering the price tag of the extra pork that had to be looted in order to bribe Congress to pass it*.

So - $700B* 0.0825 = $57.75B in profits, minus $150B in pork, leaving the taxpayer's still about $90B in the red. That $90B is chicken feed (especially since taxpayers in politically-favored industries got to keep some of that money in the form of after-tax wages) compared to the Great Depression 2.0, but neither wing of the Party should pretend that its hands are clean.


It was Republicans who demanded the pork

Don't say that Congress held it hostage until they could add an extra $150B in pork--place the blame where it is due. Nancy Pelosi initially brought a clean bill to the House floor and got a majority of Democratic Congressmen to vote for it. But President Bush couldn't convince very many Republicans to vote for a clean bill, so we ended up with one containing a fair amount of pork.


so it not only paid for

so it not only paid for itself, but it made a profit of 8%?
without increasing inflation, and no need to print extra money?
this is possibly the most successful govt program so far if that is the case


Pissed we didn't get more

Buffett's mid-crisis GS investment has pretty much doubled since the time he made it. He got sweet terms: 10% coupon on a preferred plus full convertibility at the then at-the-money price of $100. We The People got a 7.5% preferred plus 15% warrant coverage at the same time. We put money into many more institutions and not all of them have had the same price performance as GS, but if we'd got Buffett's terms we'd have made at least 20%. Buying preferred converts in the banks was the right idea at the time, but the price we got was so bad it makes one wonder whether our execution trader was somehow conflicted. I think his name was Hank Paulson...


This thread is nonsensical

This thread is nonsensical twaddle. Nothing has systemically been fixed; the can has been kicked, that's it. The only way banks are demonstrating a profit is through continued long-running control fraud: With the removal of mark-to-market, the SEC allows banks to value their securities at whatever they want, and pay bonuses accordingly.

The reason for the bailouts was that it presumed the banks would FIX THE PROBLEMS rather than lift up the rug and sweep the "bad marks" under it.

We will not grow our way out of this problem until the bad debt is cleared.




Recent comments


Advertising


Order from Amazon


Copyright

Creative Commons LicenseThe content of CapitalGainsandGames.com is licensed under a Creative Commons Attribution-Noncommercial-Share Alike 3.0 United States License. Need permissions beyond the scope of this license? Please submit a request here.