Both Obama and the Treasury Department keep talking up the TARP as if it is a money maker for taxpayers, when nothing could be further from the truth. Obama tried this stunt in his anniversary of Lehman speech, and the Treasury continues with the theme, of implying that results for the firms that paid back are representative of what the final results would be.
If this logic were generally true, that would mean subprime bonds were a good investment too. After all, most borrowers did make good on their mortgages. A late September Moodys mortgage survey that a reader sent me estimated that total losses on subprime RMBS will be about 26%, which means that 74% were money good.
The problem with the Treasury/Obama three card monte is that the strongest TARP are the ones that paid off first. Things can only go downhill from here. Do you expect AIG to repay the TARP in full? Or the auto companies?
But you’d never guess that if you took the latest propaganda at face value. From MarketWatch:
The Troubled Asset Relief Program has generated at least $16 billion in profit so far, the Treasury Department said late Wednesday…
Total repayments by TARP banks should top $175 billion by the end of 2010, cutting taxpayer exposure to the sector by three-quarters, the Treasury estimated.
TARP programs aimed at stabilizing the banking system will earn a profit from dividends, interest, early repayments, and the sale of warrants, it added. Bank investments of $245 billion in Treasury’s 2009 fiscal year were initially projected to cost $76 billion, but are now forecast to generate a profit.
Yves here. Did you catch that? This is too clever by half. They are now talking about TARP “bank only” results, which serves to omit the biggest turkeys.
Then we get this bit:
According to a recent Treasury report, 55 institutions that received TARP money are delinquent on dividends they owe the government, as of a Nov. 16 payment deadline.
Yves here. Admittedly, these are smaller banks. Nevertheless, we reported in October that just about no one noticed that 34 banks had missed their TARP dividends. Now we are up to 55. This is an impressive rate of decay.
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Well the states should be beginning to line up behind Arizona for their Come To Jesus moments. When does this happen at the national level?
Yves, haven’t seen you mention this before. Check out pgs. 5-13 here. (From Carroll Quigley’s book “Tragedy & Hope”
http://ia341238.us.archive.org/0/items/TragedyAndHope/TH.pdf
For those interested in the details, the 55 banks who have missed their divident payments can be found in the treasury list:
http://www.financialstability.gov/latest/reportsanddocs.html
Look in the upper right under “Dividends and Interest Reports”. Search for “none” under col E “Actual dividend payments”
Yves, thank you so much for what you do here for us. I greatly enjoy your articles, I have learned a great deal, and the topics you cover are so diverse and interesting, I always enjoy visiting your blog. I think it is the best blog I have ever come across.
I wish you a Merry Christmas and a very Happy New Year!
Vinny
Good Morning Yves:
A couple of qualifiers (for lack of a better word).
Didn’t everyone have to become a bank holding company, if not already a bank, to secure TARP funds with the exception of Chrysler and GM? As I remember, Sach, AE, etc. all converted to bank holding companies which also entitled them to all sorts of goodies (and new abuses to be imagined and taken) normally reserved for banks alone.
As GM consolidates its debt to just paying back TARP, I am curious as to why you do not believe GM will repay TARP. Pre-W$ cliff diving, it was well on its way to trashing its capacitiy by closing facilities and its product line by discontinuing models with the lowest cost fallout being labor both white and blue collar. This effort continues today and the results of which will be a much smaller GM with a much lower cost base to meet.
While the US rethinks itself, GM has positioned itself as a potentially viable force in the future if it can change how it envisons demand and manufacturing and changes the model for each. It appears with the trashing of Henderson and the CFO, it “may” be on the path to such if it doesn’t pick a W$ type and indeed picks someone who understands manufacturing and the market place . . . a tall order.
China sales remain strong while all of this is occurring. Of the money passed around, these TARP funds came the closest to main street Michigan, which has been recessional for 8 years now. Since the company is reliant at making a product of value at a profit rather than speculating on paper, the payback may be longer than 1 year as witnessed today with banks.
Three years ago I knew nothing, I was suspicious, but had nothing to hang those suspicions on. I surfed the web and found that most of the cites I was visiting had a link to Yves’ site. I am forever in her debt, she has clarified the extremely difficult world of finance to the point where I think I can begin to understand.
I would also like to thank Yves for her heroic efforts.
Merry Christmas Yves, I can’t wait for your book.
Same here Yves, this site was the first I read in the past two years that helped me begin to understand what had been going wrong in the economic realm.
You will likely never fully understand the positive impact your blog has had on thousands of us who are not schooled in finance/economics.
Have a great holiday season secure in the knowledge that you have made contributions to good in the world, rather than to that other stuff :-( EVIL……..
Bill
Yves, I would also like to join in wishing you nice holidays. You are doing a fabulous and stressful job to educate us. And the most stimulating site I read every day remains yours.
Even if there turned out to be zero actual “loss” in the end, it would still have amounted to a huge subsidy to the financial industry given the almost unlimited downside risks that the Treasury assumed to bail out the banks. When I get back only $2.10 on my bet on a 10 to 1 horse, I consider that a subsidy to the gaming industry. Talk about being gamed….
Exactly. If some small business gets in a liquidity crunch, the market rate of interest for rescue is painful, incredibly painful. These banks were deemed to be different and were exempted from this pain, and as a result, their employees are continuing to accumulate assets at an astonishing rate, to everyone else’s comparative detriment.
Yves, this has been their tune from when we met them in DC. They talked about the profit, and one of us brought up the day’s bailout of GMAC. The response was essentially, “That’s different.”
With AIG and the GSEs there is no way the bailouts are profitable.
The problem with the whole TARP matter may be beyond the simple question of whether the government of the U.S. will profit, break even or loose from its ‘investment’. The question is; should those business entities have been saved at all or was their potential demise a natural and needed function of a competitive market?
The argument as to whether it is the publics’ best interest to save organizations which through their own malfeasance and mismanagement perpetrated the events that led to their difficulties is complemented by the question, if the government bail-out of troubled corporations is such a profitable exercise, will this be the expected turn of future calamities? Has precedent been set? Are GSE’s the ticket for the future?
To the former, I’m reminded that Chysler was bail-out in the 70’s, which despite their quick repayment of their government obligations, did not (or could not) reform their operations to the point of not requiring yet another government salvation effort 30 years down the road. I’m reminded also that with Chysler the purported reasoning was the salvation of ‘American’ jobs, something which is laughable in retrospect of the intervening years. With revisited terminology of banks, it is the support of a whole national financial apparatus defined as a foundation of national sovereignty. In either case, the issue is not confrontation and resolution, but displacement and continuation, with the vain hope that a solution will be forthcoming with minimal dislocation and pain.
The latter point falls out from the former in that due to apparent gains, the bail-out becomes the preferred method for addressing future problems of this nature. Not only is it beneficial to a private institution, but if we are to understand the headlines, government too can gain financially by applying this philosophy of public backstopping of private misstep (might extending credit be a new way for government to generated income to pay for its obligations?).
The role of government and private should be sharply defined and separated. The recent TARP injections and other interventions merely muddle that separation, covering critical structural flaws and making future crisis inevitable.
“Now we are up to 55. This is an impressive rate of decay.”
The only item that has not suffered any decay in the officialdom/FIRE universe is this substance known as enzyme-free bovine fazoo, a.k.a. bullshit.
That is why you blog is a must-read for me. It’s one of the best bullshit scrubber in the whole blogosphere.
Happy Holidays Yves!
@Dean Stockman:
I checked out the investment site you spammed/recommended. Worst thing I ever saw. Guaranteed to lose money. Got any other hot tips?
What else would you have expected? Have you EVER been able to depend or trust anything that came out of dc other than total BS?