Citizen Economists » TARP

Cleveburgh Watch: A Tale of Two Banks

Christopher Briem — Wed, 28 Dec 2011 17:50:52 +0000

So to admit upfront, this is all parasitic on some neat reporting from Bloomberg out on the Analytic Journalism frontier. They have acquired and made available to the public (which means they want us to use it right?) data as they describe “Once secret ” from the Federal Reserve on its lending to major banks during during the peak of the financial crisis.

As they describe it in detail the data:

The data reflect lending from the Asset-Backed Commercial Paper Money Market Mutual Fund Liquidity Facility, the Commercial Paper Funding Facility, the Primary Dealer Credit Facility, the Term Auction Facility, the Term Securities Lending Facility, the discount window and single-tranche open market operations, or ST OMO.

Got that? I have pulled the files for PNC and National City which now are one of course. Some may recall there was a certain bit of angst up the Turnpike that for some reason National City was denied TARP funding that might have kept it around a bit longer. The PNC takeover followed immediately on the heels of the government’s denial of TARP dollars. Some thought it a bit less than fair since along the way PNC used some of the same money to implement the takeover.

Well.. if there is any doubt over the flawed logic of a straight one on one comparison of the financial situation of the two banks at the time, here is what the Bloomberg data has for Fed lending to the two institutions as a percentage of their market capitalizations day by day.

Yes at one point near the end, Fed lending to National City well exceeded its market capitalization. PNC’s lending looked to be in itinerant blocks of a billlion. I am speculating completely when I wonder if that was $ pushed by the Fed as it wanted to shore up confidence in the system.. not really money desperately needed by PNC at the time.

Occupy That!

Simon Grey — Fri, 11 Nov 2011 20:10:12 +0000

Austin Hill, ladies and gentlemen:

Will you allow this question to “occupy” your minds for a moment? Seriously, what would happen to our country if we all chose to do nothing but take up space on “public” property (or even on other people’s private property as some of you have done), consume resources at other people’s expense, and spend several days in a row not producing things? Have you even thought of what might happen, if the rest of us followed your “example?”

Well, I suppose it would first depend on who all quit their jobs. If every politician, bureaucrat, and bankster quit their jobs, I would be willing to bet that everyone would considerably better off. Toss in superfluous workers that are only necessary because of government interference, like tax lawyers, compliance officers, safety managers, CPAs, etc., and suddenly this country wouldn’t be shackled in economic regression. As for everyone else, point taken.

However, it should probably be pointed out that many OWSers are able to OWS because they don’t have jobs. See, the funny thing about recessions, even those caused by massive government intervention leading to housing bubbles which are then exploited for massive profit by Wall Street banks who are defrauding home owners as well as Americans by using the Fed as an ATM machine, is that jobs tend to be more scarce. And when that recession turns into a depression, those scarce jobs don’t come back for a while. So, for the most part, Occupy Wall Street is not a matter of people quitting their jobs as much as it is a matter of people not having jobs in the first place because the government, acting as a pawn of the banks, decided to wreck the economy.

Participants in the nationwide “occupy” movement would probably be shocked to know this. But the fact is, their oh-so-important demonstrations are able to occur as they do because the majority of us in America do not think and act the way they do. In fact, to be even more precise, their choices are enabled in no small part by – gasp!- American-styled Capitalism! Yet just as those who burn the U.S. flag fail to understand that the object they desecrate is emblematic of the freedom they exercise, the occupiers fail to see that the “C-word” which they loathe is precisely what makes their occupying possible. [Emphasis added.]

Actually, it is the distinctly American form of crony capitalism, as typified by TARP and other recent bailouts, that led to the current set of choices OWSers face. The banks have looted the American economy, quite illegally, it should be noted (and note that the linked article only concerns itself with judicial rulings, not investigative allegations, which means that the assertion of fraud was either proved in a court of law or admitted to by the perpetrators!) Jobs are scarce because politicians had to tax small business and mid-sized businesses to death in order to fellate pay off the major banks that have bought them contributed to their campaigns in the past election cycles. And the cost of those taxes have been jobs that would have otherwise be filled by those currently OWSing.Quite simply, the free market is dead in America, and has been for decades. The result is exceedingly high unemployment—the U6 index indicates it’s been in the high double digits for some time—which is the direct result of massive government intervention in the economy, for the benefit of enriching the banks. This is in no way free-market capitalism. In fact, a certain someone has noted quite acutely that America doesn’t actually have a free market, in practice. Yet, said someone wants to act as if suddenly the market is perfectly free and all the decades of government intervention no longer have consequences and therefore all those who are currently OWSing are simply socialists who want to redistribute the wealth.

But yes, American-styled capitalism has not only made OWSing possible, in that it has eliminated productive jobs, but it has also made it necessary because the system is corrupt and redistributionist.

Also, in regards to the burning of American flags, could Mr. Hill please provide proof of this occurrence? I searched on Google for photographic evidence of OWSers burning the American flag, but all I could find was the occasional desecration, and a few instances of burning the Israeli flag, presumably in honor of Ben Bernanke. I would very much like proof that OWSers are actually the anti-American protestors that the conservative media make them out to be.

(For those who are interested, Karl Denninger has a rather thorough takedown of Thomas Sowell’s article on OWS.)

TARP Payback Outlook Brightens Even Further

Eldon Mast — Thu, 16 Dec 2010 15:36:00 +0000

On Wednesday, taxpayers received additional paybacks from their investments in the Troubled Asset Relief Program (TARP).

General Motors Corp., which went public last month, repurchased it’s preferred shares in the program to the tune of $2.1B.

Additionally, common shares held by the Treasury are now valued at nearly $17B based on GM’s closing price of $33.61 on Wednesday. The Treasury continues to hold a stake of 500,065,254 shares of common stock in GM via the TARP program investment.

Monday’s transaction is further evidence of the success of the $700B program that has now not only helped stabilize the U.S. Banking system, but also the U.S. auto industry.

The government investment — which initially was viewed as a cost burden to U.S. taxpayers — has now stabilized two large U.S. industries and has some analysts wondering if the investments might even turn a profit. Cost estimates over the last several months have the break-even gap narrowing nearly every month, with the last estimate closing to within $25 billion.

A Small Price to Pay: $25B And Falling

Eldon Mast — Tue, 30 Nov 2010 15:25:51 +0000

The Troubled Asset Relief Program will cost taxpayers far less than initially feared, with the new price tag estimate now just in at $25 billion. That according to the Congressional Budget Office report released on Monday.

The nonpartisan group underscored that, “it was not apparent when the TARP was created two years ago that the costs would be this low. Because the financial system stabilized and then improved, the amount of funds used by the TARP was well below the $700 billion initially authorized and the outcomes of most transactions made through the TARP were favorable for the federal government.”

The once much debated program, now has fewer and fewer skeptics. And it seems each month brings better news from the CBO. In August, the CBO report predicted a cost of $66B. Just last month the the Treasury Department estimated that TARP cost could end up being as little as $29 billion. Monday’s report bested even that. At the $25B estimate, the program will cost less than half of what it took to clean up the massive savings and loan crisis of the 1980s.

The program which provided the equivalent of U.S. taxpayer loans to automakers, big banks, and bad loan brokers has ended up costing far less than expected because of a number of reasons. Most banks that received bailout funds repaid their TARP money sooner than even the most optimistic forecasters had projected 18 months ago. In addition, participation in a program designed to aid struggling homeowners with their mortgages has turned out to be much lower than forecast.

Indeed we now are seeing objective measures that point to 2008 gloom and doom claims that were massively overblown and our report that “TARP is Working” in early 2009, was right on.

Geithner: “Unpopular 2009 Actions Were The Right Thing To Do”

Eldon Mast — Wed, 23 Jun 2010 13:56:03 +0000

Treasury Secretary Timothy F. Geithner said credit availability is improving and companies are building up unprecedented cash reserves, signs that the U.S. economy continues on a path of increased growth.

Further the Secretary claimed on Tuesday that the government’s management of the $700 billion Troubled Asset Relief Program has yield the desire results while costing much less than originally estimated. The unpopular program he claims “played a critical role” in loosening access to credit and putting the economy back on a solid footing.

“Credit conditions overall, which dragged our economy into a deep recession in 2007, no longer pose an obstacle to growth,” Geithner said in his testimony to the Congressional Oversight Panel. Geithner pointed to U.S. firms that are now raising money in capital markets “and have built up record cash reserves, which will eventually be reinvested and fuel growth.”

The TARP program was criticized by both Democratic and Republican lawmakers as favoring Wall Street over small businesses. Many thought the government would likely lose all of the $700 billion lawmakers had allocated to rescue large banks as well as several U.S. automakers and housing loan backers.

Surprisingly, the cost to taxpayers has now plummeted to $105 billion at last estimate, down from an estimate of $341 billion in August. And it seems now that the benefits have thus far continued to outweigh the cost of the program.

Congress authorized TARP in October 2008 to prevent a collapse of the U.S. financial system. Against the predictions of many, companies like Goldman Sachs Group Inc. and Bank of America Corp. that borrowed funds have since repaid the government with interest. Additionally because of the return to more palatable market conditions, Geithner said the Treasury plans to sell the remainder of its stake in Citigroup Inc. in an “orderly fashion” by year end, further reducing the overall cost of the rescue program.

In additional good news, prospects for the government’s investments in the auto industry have improved, and the Treasury plans to begin to recover its stake in General Motors Co. after the company has an initial public offering later this year or in 2011.

Losses from government investments in GMAC Inc. “will be less than forecast last year,” the Secretary said.

Geithner said the Obama administration doesn’t plan to extend TARP past its Oct. 3 expiration and called Tuesday’s hearing “a eulogy” for the program.

The TARP loans “did what they were supposed to do,” Geithner continued. The economy wouldn’t have started to rebound “without the dramatic actions we took, however unpopular, to bring down the cost of credit and stabilize the system.”

Taxpayers About to Benefit Handsomely from Citigroup Bailout

Eldon Mast — Mon, 29 Mar 2010 18:23:58 +0000

You may remember that last year Citigroup (C) got a $25B bailout that was much bigger than the rest of the big banks. Now — about a year later — the company is about to pay dearly for the taxpayer provided lifeline.

In today’s market, the TARP’s 27% take in Citi has grown in value to $33B. And as the bank contemplates it’s payback, the ultimate size of the deal may be the largest in Wall street history… and may net U.S. taxpayers another cool $8B for their trouble. (Federal taxpayers received a 23% annualized return on their investment in Goldman Sachs when that wall street firm paid back it’s bailout.)

Leading financial firms, including J.P. Morgan Chase and Morgan Stanley, are vying to be chosen as the deal’s underwriters to gain the prestige of managing a historic stock sale as well as the fees from investors who buy the shares. To improve their chances, some big banks, such as Goldman Sachs, are offering their services to the Treasury Department at almost no cost.

The windfall expected from the stock sale would amount to a validation of the rescue plan adopted by government officials during the height of the financial panic, when the banking system neared the brink of collapse. A year ago, Citigroup’s stock hovered around a dollar a share, and the bank’s future seemed in doubt. On Friday, the stock closed at $4.31.

If the sale proceeds as planned, Citigroup would be able to cut nearly all of its ties to TARP and the Obama administration can continue to highlight the profit generated from the rescue of big banks.

“It’s unprecedented to do [a stock sale] of this size right after the financial industry has been so battered,” said one industry official on Friday. “It’s just a very bullish sign.”

Citigroup was among nine major banks that were the first to take bailout funds in October 2008, and all have returned their federal loans. In addition to these repayments, the Treasury has received interest, dividends and about $3.5 billion from the sale of warrants, which are contracts allowing a holder to buy a company’s stock in the future.

To many it is now clear that rescuing large the Wall Street firms has come at a much lower cost to taxpayers than many had expected. In fact, so far the investment program has produced all net positive results for the U.S. Treasury.

Stossel Does Atlas Shrugged, Asks "Who is Wesley Mouch?"

Thersites — Thu, 07 Jan 2010 15:51:04 +0000

In tomorrow’s episode of John Stossel’s new show on Fox Business, he will address the question, “Who is Wesley Mouch?” in speaking to the parallels between Atlas Shrugged and contemporary America. As one might expect, in my view it seems as if almost all businessmen (given their predilection towards using government to destroy markets to their own advantage) in one way or another embody the qualities of Wesley Mouch.

One exception who will be on Stossel’s program is John Allison, an executive at BB&T Bank, who staunchly opposed TARP, has repeatedly refused to use the law to plunder the property of others and as one might guess is an ardent Austrian-school libertarian. In a scene reminiscent of the smoke-filled rooms of Atlas Shrugged, Allison divulged at an NYU lecture this past fall that the Feds threatened to go in and audit any bank that wouldn’t take government funds, forcing healthy banks to comply so as to cover for the fact that the government was only propping up a select few sick ones (at the expense of the solvent I might add).

In response to Stossel’s call in the aforehyperlinked column for suggestions for a follow-up show on “crony capitalism,” I posted:
John,

If you want to talk about crony capitalism, it may pay to have Burton Fulsom who wrote “The Myth of the Robber Barons” on the program. I think the key is to delineate between political entrepreneurs and market entrepreneurs, something which he does astutely in that book.

Political entrepreneurs seek to use government decrees to profit, largely by cartelization, monopoly advantages and other barriers to entry, while market entrepreneurs generally seek to win profits in the market by merit – by producing the best product at the cheapest price.

More generally, the Mouch problem lies in the fact that while initially businessmen extol the virtues of little regulation, low barriers to entry and minimal governmental interference generally, once they become successful, out of self-interest they support any and all legislation that will cement their position in the market. They support all of those things anathema to the free market that they had used to their advantage in the first place.

This is akin to the economic plight of America as a whole. While up until the early 20th century (though some libertarians will argue that it was really only up until the time of Lincoln), America functioned under a largely laissez-faire economy, with the wealth and progress generated by this economy, we forgot about the virtues that led to our success and rewarded those tending towards failure. We created a welfare state from the riches of a relatively free state, throwing under the bus the very principles that elevated to us to our position as a great nation.

Taxpayers Earn 23% Return on Goldman TARP Investment

Eldon Mast — Thu, 23 Jul 2009 18:08:56 +0000

Federal taxpayers received a 23% annualized return on their investment in Goldman Sachs. On Wednesday Goldman announced that calculation by combining the interest it paid before repaying the Treasury’s $10 billion principal loan with the warrant buyback payments it made this week.

Goldman as led the way this week with surprise Q2 earnings… profits made on the back of government support for the firms.

Several analysts agree that Sachs paid fair value for the warrants. But JPMorgan Chase continues to haggle with the government over the value of its warrants. Whether or not JPMorgan ultimately settles or forces the government to auction the warrants on the open market, the TARP program is certainly turning out to be a boon for taxpayers.

TARP Warrants: A Boon for Taxpayers?

Eldon Mast — Mon, 13 Jul 2009 06:50:00 +0000

On Friday it was announced that State Street Corp. became the first of 10 large banks to repurchase warrants held by the US Treasury. The warrants were put in place to assure that taxpayers are rewarded for their collective TARP loan to banks as the finance sector recovers.

The transaction occurred on Wednesday and cost State Street $60 million dollars. The proceeds flowed directly into US government coffers. The transaction sets the warrant bar for the nine other top banks who have collectively repayed $66B in rescue aid principal, but have yet to retire their warrant obligations by negotiating deals with the Treasury.

The State Street transaction equates to $30M per $1B borrowed. That could well mean that the other nine banks are looking at a collective $2B payback on their $66B.

The warrant deals are politically sensitive, with congress calling on the Treasury to drive a hard bargain on behalf of taxpayers. Banks have complained that valuing the warrants too highly could impede the goal of restoring health to the financial system. (I’ll use that line on my bank loan officer the next time and see how well it works)

For taxpayers (many of which viewed the bailout monies as a gift rather than a loan to the banks) are now reveling in the reality that they’ve just made a quick 3% gain in less than a year.

A quite healthy return in the current investment climate.

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Buy a suit at Jos. A. Bank, let them give you a bank!

D H Smith — Tue, 07 Apr 2009 12:40:46 +0000

Gosh, I’m so sick of their commercials. Where do they get the goofball with the infinitely joyful sing-song voice, who is always offering ever more fantastic deals on clothing that no one needs!

Buy three suits, get five free!!! For what, dude? Don’t have no job, don’t need no suit!

Or if you had a job to which you might otherwise have worn a suit, the Security Department of your company has sent out a memo telling you to dress like a plumber or electrician just in case demonstrators think you’re a bonus recipient and throw garbage at you, or worse.

This is my modest proposal to Jos. A Bank. It’s a variation of the old wheeze where you open a CD at the bank and they give you a toaster. I’ll buy the goddamn suit, and I’ll allow you, Jos. A. Bank, to give me a bank. You’ve got banks, right? That’s why you’re called that! Plus, if you don’t have enough banks to give to the thirteen men in America today who might be persuaded to buy a junky suit if they got a bank with it, you can get more from the TARP. A suit is body cover, and what better to cover bodies than TARP?

Great deal. You unload surplus suits, government unloads surplus banks, I recapitalize my bank by taking Bazooka Joe wrappers and SH Green Stamps to the Fed discount window. Everyone’s a winner.