This Day In TARP Triumphalism

It's been a while since we've heard that trumpet voluntary from the Treasury Department, signaling the sending of another press release celebrating the fact that "TARP worked!" But today, the horns sounded, and lo, this statement ended up in my inbox:

FOR IMMEDIATE RELEASE: August 18, 2011

TREASURY RECEIVES $2 BILLION TARP REPAYMENT FROM AMERICAN INTERNATIONAL GROUP (AIG)

WASHINGTON -- Today, the U.S. Department of the Treasury announced that it had received an additional repayment from American International Group (AIG) of $2.15 billion funded through the proceeds from the previously announced sale of AIG's Nan Shan life insurance subsidiary. The proceeds were used to pay back the U.S. taxpayers' investment in AIG through the redemption of an equal portion of Treasury's preferred equity interests in AIA Aurora LLC, a subsidiary of AIG.

"This is another important milestone in AIG's remarkable turnaround," said Assistant Secretary for Financial Stability Tim Massad. "We continue to make progress in recovering the taxpayers' investments in AIG."

Okay, I'm just going to stop it right there, because when it comes to "AIG's remarkable turnaround," the devil is in the details. Time and time again we're asked to celebrate the success of TARP. Back in March, the good news was that, "The Treasury currently estimates that bank programs within TARP will ultimately provide a lifetime profit of nearly $20 billion to taxpayers."

But this "profit" that the government has turned on the bailout of AIG rings pretty hollow in light of the four different restructurings of the original agreement that the government has acquiesced to since the fall of 2008. When the Fed first stepped in to prevent AIG from collapse in September 2008, the deal was actually pretty good -- it carried a punitively-high interest rate appropriate for a bailout, the CEO was dismissed and the company was going to sell itself off in parts, ending its too-big-to-fail status. If the government were turning a profit on a deal like this, it would indeed be good news.

The trouble is, AIG's new management didn't break up the company very quickly. And even as it paid out lavish bonuses to its top-performing traders and executives, it couldn't make good on its interest payments to the government. So the feds stepped in again -- and again, and again -- throwing more money at the company, reducing the interest that it would pay taxpayers and eventually converting the government's loans to common stock, abandoning concrete repayment obligations in favor of whatever the stock might someday be worth.

Yves Smith at Naked Capitalism said, "In deal land, this is called a free concession and is a sign of chumpdom." Smith continued,

All the restructurings have succeeded in lowering the benchmark for success. An investor doesn't simply want to get his money back; he wants a suitable risk adjusted return. That would have been 11.5% for the first two years of the loan. AIG won't provide anything resembling either proper compensation or a Bagehot-style penalty rate.

AIG may very well someday get to break-even with the U.S. If so, it's because the U.S. agreed to throw away tons of money on bonuses instead of pursuing a faster concrete break-up strategy, and because the U.S. allowed the company to repeatedly filch on its obligations to taxpayers. If the U.S. had simply enforced the original bailout deal, taxpayers would be hauling in a lot more.

Per the Treasury Department's press release, "After today's repayment, the U.S. Government's remaining outstanding investment in AIG through Treasury is $51 billion." Ehhh. That makes it hard to celebrate taking back $2 billion, doesn't it? Well, this part is supposed to make it easier: "Overall, Treasury has received $313 billion in repayments and other income from its TARP investments -- more than 76 percent of the $412 billion disbursed under the program to date."

As always, the trouble with TARP triumphalism is that it we're only talking about a sliver of the overall taxpayer bailout. As Mary Bottari noted about a week before the Troubled Asset Relief Program was scheduled to end in 2010, taxpayers were still owed a cool $2 trillion at that point:

While it is true that many TARP bailout programs have ended, Center for Media and Democracy research shows that money is still due to taxpayers under the TARP. More importantly, the research shows that the U.S. Treasury Department's ten TARP programs represent less than seven percent of the $4.7 trillion disbursed by the U.S. government in an effort to aid the financial services industry. Far more money has been disbursed by the Federal Reserve to prop up the financial system than by the U.S. Treasury and those loans are still outstanding.

If you're having trouble visualizing "far more money," here you go.

So, if we were $2 trillion in the hole this time last year, you might be wondering how well we've fared in terms of getting paid back since then. As it happens, Bottari revisited the issue two weeks ago:

A new study released today by the Center for Media and Democracy (CMD) shows that, despite rosy statements about the bailout's impending successful conclusion from federal government officials, $1.5 trillion of the $4.8 trillion in federal bailout funds are still outstanding.

The analysis, presented in charts and an online table and program profiles, is based entirely on government records. This comprehensive assessment of the bailout goes beyond the relatively small Troubled Asset Relief Program (TARP) to look at the rest of the Treasury and Federal Reserve's multi-trillion dollar response to the financial crisis. It shows that, while the TARP bailout of Wall Street (not including the bailout of the auto industry) amounted to $330 billion, the government also quietly spent $4.4 trillion more in efforts to stave off the collapse of the financial and mortgage lending sectors.

It cannot be stressed enough, the "bailout" and the "Troubled Asset Relief Program" are two very different things. When The Huffington Post spoke to Bottari back in March, she underscored this, saying, "TARP was never the big enchilada. It was always the Fed, and the Fed's exposure still remains in the housing sector, where they have pumped billions in an effort to prop up the housing market."

That effort is still going on, by the way:

The government's housing program -- which peaked at $1.6 trillion outstanding in July 2010 -- is aimed at keeping mortgage lending flowing by subsidizing deals Fannie Mae and Freddie Mac make with the banks. Treasury and the Federal Reserve's main approach has been to buy more than a trillion dollars worth of mortgage-backed securities from Fannie Mae and Freddie Mac so that the two government-sponsored enterprises can continue to purchase and bundle mortgages from the banks, which they sell to Fannie and Freddie at a profit. The banks also benefit from the hundreds of billions in direct loans the government has made to Fannie and Freddie, which the GSEs then turn around and make in insurance payouts to banks for mortgages that have gone bad.

This massive effort is in stark contrast to the mere $2 billion the Treasury has spent to directly help homeowners stay in their homes via the widely criticized Home Affordable Mortgage Program (HAMP) program. With housing prices continuing to falter and the United States approaching 9.2 million foreclosure filings since the beginning of 2008, HAMP can be described as nothing less than an abject failure.

"The Federal Reserve and the Treasury have spent $1.6 trillion in a bank-shot to save the mortgage lending market by using the same financial companies that got us into this mess," said Conor Kenny, lead author of the study. "That's more than 800 times what they've spent directly to keep homeowners in their houses, and the banks have made money off the whole thing."

But AIG scraped together $2 billion to pay down what they owe, so pop champagne!

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Comments

[MISTERUNCONVENTIONAL]

08:12 PM on 08/20/2011

Excuse me a minute. I need to go throw up.

[arktig]

06:02 PM on 08/20/2011

The Fed balance sheet is about 1.5 Trillion more than it has to be. After some 20 Trillion of zero interest money to the banks, I recon, the latter should have earned about 600 billion - a conservative estimate. The money came from the taxpayers but wasn't enough to repair the banking system - alas, a good chunk of the money went to "bonuses". The Wall Street bankers don't care about the banking system, it's only about their own pockets.

The bad part is that nothing got built in the US. The banks got their cut and they keep asking for more. China got a piece of the pie, their economy grew by 10% per year, their "reserves" - by 20% or so. However, the US economy is back where it was 10 years ago...

The stimulus is stimulating the wrong countries... Scaled tariffs, import certificates, balanced trade and the New Deal - the only reasonable solution.

[ugly american]

05:59 PM on 08/20/2011

TARP was a fools play.
For all that money the government threw at the Banksters and Wall Street, we are only going from the Great Recession into Great Depression2.
They paid no attention to what history should have taught them. This sort of bailouts did not work for Hoover in 1930 and it isn't working for Obama in 2011.
Economies are not built from the top down. They are built from the bottom up. People can trade as much stock as they want and drive the price to the stratosphere but in the end, if the company cannot make an outside profit by selling it's wares, it and stockholders are doomed to go broke.
AIG pays big bonuses to it's employees and executives often without merit. They sell insurance and dabbled in the market where they really didn't belong. So with other bail-out companies except the car makers. They produce nothing and merely shift money around.
Maybe in the coming crash they will learn that FDR, not Hoover, had the right idea.
Get ready. It's about to be a very rough ride.

[libertron]

10:05 PM on 08/20/2011

You are the one being fooled. The banksters on Wall Street were told by the feds to take TARP loan money in a bid to make sure the banking system was not undercapitalised and crashes. They took it and have since paid it back, and yet are still made out to be the bad guys.

Who took 150+ Billion, never paid any back, and are STILL asking for more? Fannie and Freddie, that's who. The govt sponsored public/private entities who were supposed to be congress-regulated in return for their "too big to fail" status.

And by the way, which congressman had been saying for years that they were a liability and needed to be cut loose from the taxpayer's dime? Ron Paul 2012!

[ntmessage]

05:03 PM on 08/20/2011

No one is owed anything. The balance sheet is not the TARP. Plus the MBS we purchased by the Fed in order to save Fannie and Freddy, not AIG.

[ntmessage]

04:58 PM on 08/20/2011

Linking the TARP, which was a government program that paid for itself with the Fed's Balance Sheet, is nonsense. It also shows how desperate and disingenuous the left is. And the lack of logic hidden behind the faux fancy charts and impressive sounding words is now laughable.

Why? Most of the MBS’s that are on the Fed balance sheet are from Fannie Mae and Freddie Mac, a huge government program that more than any other contributed to the crash. If it was not for the balance sheet, the homes on those balance sheets would become worthless overnight. Are we resorting to spin that now is desperately close to lying? I mean I just saw an ad that tries to stop the Democrats from taking Medicare away. Do the Dem realize that they are on the wrong side of this argument and are trying to say with warped logic that they are and that they, the dems should be stopped from balancing the budget? Implying that the GOP are for big government

[whitemale08]

04:22 PM on 08/20/2011

TARP was an utter failure.

The intial scam kicked off the mother-of-all scams - TALF, QE 1,2..3 and if Glass-Steagall is not restored, the permanent indebtedness of the United States to a group of greedy parasitical, so-called TBTF banksters.

If you look at what TARP is, right-off the top, you notice that it's just a shell game, where the first order was to say certain bankrupt failed gambling houses were too-big-to-fail.

Then you notice that no matter what, you set up a permanent controversy over its supposed success, because it depends on how the underlining collaterized mortgages are performing.

No one knows how a mortgage is going to perform for the next 30-years, yet, the taxpayer is supposed to believe that ALL the sub-prime mortgages are supposed to perform perfectly.

Afterall, that's what the TALF window was; to give cold cash to those gave Ben Bernanke MBS.

Ben Bernanke told us the collateral was nothing but AAA, but that was before he managed to get the debt-ceiling raised and pre-S&P downgrade.

American people wonder why isn't there jobs?...why cut Social Security, etc?

Now all of these tax revenues are supposed to cover these new debts, incurred by this bailout, since we're supposed to wait 30-years to see how these mortgages do.

Bottom line, TARP was the biggest scam in human history can TBTF is still hopelessly bankrupt and the American taxpayer the biggest SUCKER ever!

[Sanity Inspector]

03:09 PM on 08/20/2011

Did TARP succeed? Expand it to ensure future success. Did TARP fail? Expand it to ensure future success.
/beltway wonk

[David Schlessinger]

01:47 PM on 08/20/2011

While the debate over whether TARP was absolutely necessary to prevent an economic meltdown, the fundamental problem besides too big to fail is that it rewards the wrong people. Despite being bailed out, these giant corporations are not hiring, contributing to a just economy, making an honest living; instead, they suck money out of the economy like a massive vacuum cleaner. So even if they pay the money back, the middle class or poor do not get bailouts which would allow themselves to improve their own lives- instead, they get wages slashed, fired, benefits cut, stagnant or dropping salaries; in other words a race to the bottom. Again, the only way out of it is to get rid of the corporate/wall street/big bank economy

[huru kidding]

02:41 PM on 08/20/2011

I agree wholeheartedly. I always thought legislative and administrative branches naive to simply hand over so much capital to these businesses without guidelines as to how this money would be used to improve the overall economy. Wouldn't it have been nice to have this money pass through "the peoples'" hands first. We could have paid off our debt, contributed to the housing market, engaged in commerce. The big banks would have ended up with it in the end anyway.

[LoneTree]

03:51 PM on 08/20/2011

" So even if they pay the money back, the middle class or poor do not get bailouts which would allow themselves to improve their own lives"

Who are these "middle class" you refer to?

And please don't tell me that the poor don't get bailouts, that's just no true. I see the bailouts every time I go to the supermarket, most people paying with money they earned by working, and others paying for the same food with vouchers they get from the government. I don't for one second begrudge the poor any assistance they get from the government (ie; We The People), but don't expect me to swallow a line about the poor not getting a bailout. Programs to provide bailouts for the poor have cost untold trillions of dollars since the War on Poverty was declared. And we have more poor than ever before, imagine that.

So again, please tell me, who are these middle class you refer to?

[MoreFreedom]

01:28 PM on 08/20/2011

In other words, our Treasury Secretary, Tim "Turbo Tax made me do it" Geithner lies yet again. Why? Because his boss Obama wants him to give that message, regardless of the reality. In other words - they lie to us.

The culture of Obama is becoming standard government procedure - lie to the citizens and tell them what the President wants them to believe. They should be ashamed of themselves and we shouldn't be voting for liars.

[codycap]

12:23 PM on 08/20/2011

Asia Times Online

This crisis has an exit
By Ellen Brown

http://www.atimes.com/atimes/Global_Economy/MF07Dj03.html

North Dakota is the only US state to have escaped the credit crisis unscathed. In 2009, while other states floundered, North Dakota had its largest budget surplus ever.

In 2008, the Bank of North Dakota (BND) had a return on equity of 25%. North Dakota has the lowest unemployment rate in the country and the lowest default rate on loans. It also has the most local banks per capita.

North Dakota has had its own bank since 1919, when farmers were losing their farms to the Wall Street bankers. They organized, won an election, and passed legislation.

The state is required by law to deposit all its revenues in the BND. As with the sustainable model of the bank of colonial Pennsylvania, interest and profits are returned to the government and to the local economy.

A growing movement is afoot in the United States to copy this public banking model in other states. Fourteen US state legislatures have now initiated bills for state-owned banks.

Publicly owned banks have been successfully established and operated in many countries, including Australia, New Zealand, Canada, Germany, Switzerland, India, China, Japan, Korea, and Malaysia. In the United States there is currently only one state-owned bank, the Bank of North Dakota.

[Electrum 01]

12:16 PM on 08/20/2011

Welcome to government "of the people, by the corporations and for the corporations."

[ksmwtm]

12:03 PM on 08/20/2011

TARP should have NEVER become necessary! Most miss The POINT, which TARP is a sign of FAILURE! Congress Failed! ALL Roads in this disaster lead to Congress! The rest is Red Herring to distract where RESPONSIBILITY falls as Congress avoids ACCOUNTABILITY!

[guveqzero]

10:50 AM on 08/20/2011

Toxic asset relief program, what kind of return do you expect when the assets are toxic? Zero. And why did our government allow and continue to allow the transfer of toxics to the government balance sheet? Because capitalism doesn't work. Banks should never be allowed to securtize and transfer the loans to someone else. They need to survive or fail based on their own competency. But, they are unable and unwilling to do so.

[ksmwtm]

10:50 AM on 08/20/2011

another Wall Street is smarter than Main Street spin OR How's that 17% + U6 unemployment working for you now? How would our economy have faired IF JOBS had been in focus from Day-One? If unemployment was up to 5% there woulde be NO deficit!!!

[BoudiccaBlanc]

10:07 AM on 08/20/2011

Capitalism...= Private Profit & Private Risk
Corporatism = Private Profit & PUBLIC Risk

CORPORATISM = FASCISM

T.A.R.P...... = Corporatism
T.A.R.P...... = Fascism

The USA = Fascism for Banksters and Global Corporatists
The USA = Capitalism for Small Business and Individuals

Capitalism = PRIVATE RISK & PRIVATE PROFIT

NO ONE BAILS OUT THE INDIVIDUAL OR MOM/POP BUSINESS WHEN THEY FAIL !!!

[LoneTree]

03:54 PM on 08/20/2011

No true capitalist was in favor of any of the bailouts or rescues. That was pure Big Government at work. Now we look forward to more lost decades of zombie banks, zombie companies, and zombie government. We are becoming Japan, without the cultural homogeneity, thrift, and discipline.

[BoudiccaBlanc]

04:37 PM on 08/20/2011

Who requested "Big Government" to bail them out?

Who bribes and "owns" our members of Congress and our presidents; as well as possibly our Supreme Court?

Answer: People who were greedy and irresponsible. These are the same people who wanted Glass-Steagall repealed; the same people who didn't want the SEC to investigate anything.

During Reagan, Bush 1, Clinton and Bush 2 the regulations were stripped away and the Military-Industrial-CONGRESSIONAL-Complex went on a rampage!

(Things haven't changed under Obama).

---

Adam Smith, himself, stated:

"Whenever 2 businessmen get together they conspire against the public."

Milton Freedman and the Chicago school were wrong! Capitalism needs regulations!