UNDER THE RADAR: TARP doesn't pay for itself, and we told you so.

[Political Heretic]

So much for the whole "its just a loan, we'll get our money back with interest!" polyanist ignorance that understand nothing of the corporate deal making that influences public policy.



Bailout Breakdown: Losses Likely to Be Larger Than Treasury Estimates
This week, the administration has been trumpeting <1> the news that the $700 billion TARP <2> is likely to ultimately cost much less than early estimates. That’s true, but far from the whole story.

The government’s best estimate, released Wednesday <3>, is that the bailouts of AIG and the auto companies will ultimately cost taxpayers about $61 billion. It also forecast that other parts of the TARP will end up making taxpayers money. Put it all together, and the final estimated loss from the bailout’s first full year (thru September 2009) is about $41.6 billion. (See our table below.)

Projected Income ($ Bn)
Est. income from bank investments $15.033
Est. income from extra aid to BoA and Citi $4.128
Est. income from TALF $0.339
Projected Income $19.5

Projected Losses
Est. loss from AIG investments $-30.427
Est. loss from auto company bailouts $-30.477
2009 costs from foreclosure prevention program $-0.002
Administrative costs $-0.167
Projected Loss $-61.073
Est. Total Net Loss $-41.573

The projections reflect only spending through September of this year.

It’s certainly true that the picture has brightened in the past year. When the Congressional Budget Office took a look <4> in January at the TARP’s main bank bailout program <5>, it estimated that the government was about $32 billion in the hole from those investments. With the freshening of the economy and recent reimbursements <6> by the major banks (Bank of America <7> in particular), the Treasury now forecasts that the program will end up making the taxpayer about $15 billion.

But the Treasury’s numbers aren’t the whole story. The latest estimate accounts for only the first year of spending, and the TARP’s spending isn’t done. Treasury says it expects the ultimate cost to be higher. Treasury Secretary Tim Geithner extended <8> the TARP thru Oct. 3, 2010, the TARP’s second birthday, earlier this week. He said, though, that Treasury didn’t expect to deploy more than $550 billion of the $700 billion available. As of today, Treasury has committed a total of about $407.3 billion <2> (that’s excluding companies that have refunded their bailout money <6>).

Because the latest estimate deals only with the TARP’s first year, it doesn’t include two big programs that recently ramped up. The foreclosure prevention program <9>, in terms of spending, is just getting started. It’s unclear how much of the $50 billion set aside for that program will ultimately be spent, because of the program’s difficulties <10>: As of the end of October, Treasury had paid only $2.3 million <11> in incentives to servicers. But whatever Treasury ultimately spends, none of that money will come back, since the program involves subsidies, not investments.

The $30 billion toxic asset purchase program <12> also got started only in the past couple months. That program involves investments and loans, but it’s hard at this point to forecast how it will fare.

The second thing to keep in mind is that the Treasury has also sunk more than $110 billion <13> into Fannie Mae and Freddie Mac. That spending wasn’t part of the administration’s estimates, because it wasn’t done via the TARP.

Treasury also forecasts big losses in other parts of the TARP. Approximately $73 billion went to auto companies <14>; Treasury currently expects to lose about $30.5 billion of that. The AIG bailout <15> fares much worse: $43.2 billion had been spent through September and Treasury forecasts losing $30.4 billion (about 70 percent!). And here’s another opportunity to add a caveat: The projected losses on AIG don’t include $2.1 billion that was loaned last month – and the Treasury could loan as much as $24.5 billion more.

Of course, all these are estimates. If the economy continues to improve and the car market booms, then the government might not lose quite so much in its investment in GM, for example. In the meantime, we will continue to post our monthly updates on the bailout <16>, which rely on hard numbers to give you an accurate picture of how the taxpayer is faring.

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[grantcart]

1. Looking at the graph I don't see any valuation for the stocks that the government now owns

For example doesn't the government now own something like 25% of the stock of GM, Chrysler and Citicorp?

At current valuations what would all of the stock that the government took for swaps be worth?



on edit Citigroup investment of $ 25 billion is now worth 26.5 billion and doesn't appear on the chart because its not a repayment, if stocks go higher then government valuation would increase

http://ustreas.gov/press/releases/tg453.htm

Treasury invested $25 billion in Citigroup in October 2008. Citigroup was one of the first participants in the Capital Purchase Program (CPP). The CPP was the primary program established by the prior Administration under TARP. It provided for capital infusions into viable banks, and in return the Treasury received nonvoting preferred stock. This program was essential to averting a collapse of our financial system, as has now been acknowledged by many, including the Congressional Oversight Panel in its most recent report. In November 2008, Treasury announced a further investment of $20 billion in Citigroup which closed at the end of December 2008. Treasury also agreed to guarantee certain Citigroup assets, in return for which it received nonvoting trust preferred securities, a transaction which was executed in January 2009. In the spring and summer of 2009, Citigroup consummated a recapitalization in order to strengthen its capital base. Treasury, along with other investors, agreed to exchange preferred stock for common stock. Thus, today, Treasury holds common stock, in which it invested $25 billion and which currently has a market value of approximately $26.5 billion. Treasury also holds nonvoting trust preferred securities in Citigroup. As I discuss below, Citigroup has announced its intention to repay $20 billion of this investment and terminate other governmental assistance.


further update

we own 60$ of GM and 10% of Chrysler, also apparently not factored in on the graph above

Treasury converted most of its loans to the Old GM into $2.1 billion of preferred stock, a 60.8 percent share of the common equity in the New GM and a $7.1 billion debt security note. $360 million of Treasury's debt in the new GM was immediately repaid with the termination of the Auto Warranty Program, leaving $6.7 billion of loans outstanding.

Today, Treasury holds 60.8% of the common stock of GM, as well as $2.1 billion of preferred stock and $6.7 billion in loans. Treasury holds 9.9% of Chrysler's common stock as well as a loan of $5.1 billion. On or after Dec. 31, 2014, GM may redeem the preferred shares at $25 per share plus any accrued and unpaid dividends, subject to limited exceptions.

[bertman]

2. Grantcart, for those of us who are slow with the math, are you saying that the OP is incorrect?

Or what?

[grantcart]

10. It may be correct but if it isn't adding the stock that the government got in

exchange then it would be missing a large part of the valuation.

In the case of Citicorp for example they are paying back all of the loans and the government still owns stock that is valued at a higher rate than the money we paid for it.

If GM recovers like Ford has then it would mean a huge increase, that is a big if, but the stocks that the government did get should have some reasonable valuation.

[bertman]

19. 10-4. Thanks.

[girl gone mad]

30. It's waaay too early to be counting those chickens.

The government isn't going to cash in C shares in 2010, and we haven't seen the end of dilution, not even close. We've already converted from preferred to common so in that respect it's a worse deal than what we were initially sold on (loss of promised dividends).

We weren't able to sell shares as planned two weeks ago because Citi's offering price would have resulted in a big loss to the government.

http://www.ft.com/cms/s/0/4dcd8f70-ea1a-11de-aeb6-00144feab49a.html?nclick_check=1

[Political Heretic]

17. It's better to say that the OP isn't the final word. These are estimates, and must be tracked

But currently, TARP is unfolding pretty much as predicted - its not something the government is going to make money from. It's unlikely to be something in which the government breaks even when it is all said and done. And when talking about losses which are nearly certain - there are some corners who estimate those losses will be larger than even predicted, given the state of things currently.

[AllentownJake]

3. Citi's capital offering a week or two ago was a flop

Stock dropped like a rock till they called it off. If the government would have to unload it's Citi shares, GM shares, or Chrysler shares over time, unless they found a private transaction which means they would sell the stock at some sort of discount.

Come on you know better than this.

[rufus dog]

6. an argument over value is valid

but wouldn't you agree that placing zero value on the assets is invalid? "Some sort of discount" isn't zero.

[AllentownJake]

7. It doesn't fill the hole

The thing that isn't in the chart is Tax rule re-writes that enabled TARP repayments either. Citi got 38 billion in Tax breaks in 2009. So they essentially got bailed out twice.

[rufus dog]

9. I wouldn't expect it to fill the hole

Specifically I see of no plausible scenario where the auto bail out would be even close to break even within a year and do not recall anyone making the claim that we would break even.

It does appear that we agree that this chart is not an accurate representation of facts.

[grantcart]

14. According to testimony at DK's committee the current value of Citicorp

stock is more than the money invested to buy it.

It doesn't appear that the graph in the OP has included any value for any of the stock.

I haven't made an arguement against any conclusion of the OP just the facts that are listed in the OP so when you say I am "better than this" I don't know what you are referring to.

Either the facts in the OP are correct and complete or they are not.

http://ustreas.gov/press/releases/tg453.htm

Thus, today, Treasury holds common stock, in which it invested $25 billion and which currently has a market value of approximately $26.5 billion.

[AllentownJake]

15. I'm loaded for bear on this issue

I'll give you $10 a share value on Citi stock, ain't going to make a lick of difference.

Timmeh's employees rewrote tax interpretation rules for the bank this year, it was revealed that Citi's rewrite will offset 38 billion in future tax liability. Since, one would have to assume that CitiGroup does not have its own tax code, the other kids on the block got similar gifts this year. This has been well documented and not disputed by the administration. It is the same type of shit Timmeh pulled with AIG when he was being offered .40 on the dollar and made $ for $ transactions.

Pay back TARP with the right hand, take a giant tax break with the left. It is worse than Enron accounting (those guys were fucking amazing). A 2nd year accounting student with a C- average could figure out what was just done.

The administration wants to do this fine, but do it after financial reform regulations are passed. You want to look forward, I won't like it, but I'll accept it if you fix the problem that caused the nonsense.

[grantcart]

29. Well Leman Brothers doesn't have any tax liabilities to worry about either.

You are arguing that you should subtract the tax that they would have gotten from Citicorp's comeback from the valuation they get from Citicorp stock.

If there was no TARP Citicorp and a number of institutions like GM and Chrysler would have followed Leman Brothers into the dustbin in history.

Are you also going to add the taxes that the recovered businesses will be paying as a positive contribution that TARP should take credit for?

The point of my reply was a simple one saying that it appears that the numbers in the OP seem to be a straight "cash flow" chart that appears to put no valuation of securities that the government got when there is an obvious value to them.

If GM returns to profitability then the US shares would be worth 20-40 billion depending on when they sold them and how well the government is doing.

[AllentownJake]

32. Citi went into chapter 13/7?

Stop being creative Grantcart, what Treasury did here is an absolute disgusting and is probably fraud. I hope to see Timmeh in an orange jump suit someday in the future.

[ProSense]

4. They're refuting the GAO's numbers with their own incomplete estimates. n/t

[AllentownJake]

5. Funny you advocate estimates on another thread from MasterCard of all people

:rofl:

[ProSense]

8. Why are you trying to be disingenuous? n/t

[AllentownJake]

12. Just having some fun with you Pro

You know if you take the re-writes of the rule interpretations of tax code for the banks this year, we essentially gave them a tax break to pay back their loans, so the money was free something which Timmeh has done before by giving everyone $ for $ on the AIG contracts despite being offered .40 on the dollar by Goldman of all firms. It's funny accounting, this chart aside. Most people are stupid enough to buy it because they don't understand if you get paid back with the left hand for a liability when the right hand is forgiving a liability you weren't really paid back.

You want to do that fine, do it after you pass reform. I understand leverage in negotiations, we gave up ours before the battle.

[Political Heretic]

18. There no way for "estimates" to be complete. However they don't come with political spin.

And also - factual information to the current date shows losses, and in many instances, massive losses.

Which was totally predictable. And by the way - you shouldn't be disagreeing.

Given that I know you base all agreement or disagreement on whether or not you think it is somehow pro or anti Obama, I should point out that TARP was implemented under Bush. The arguments for doing so - that it will all pay for itself and in fact the tax payers will make a profit (which is a ludicrous insulting thing to say since I won't see any of that "profit" in my wallet - ever) were made before Obama even took office.

So.... you can go ahead and agree with me, since its no threat to Obama.

[sendero]

11. Anyone who still doesn't understand....

... that the bailouts were for the benefit of the banksters at the expense of the taxpayers should really get a fucking clue already.

The government is NOT going to make money on these "investments", period.

All kinds of funky accounting will try to show otherwise, but again, get a clue, this is about BAILING OUT THE ASSHOLES WHO WRECKED OUR ECONOMY, nothing more and nothing less.

[Political Heretic]

20. That's exactly, obviously right. Frankly those who tell you otherwise are on the fucking payroll.

Either literally or figuratively - they're advocating in defense of the wants and whims of the financial elite and not on behalf of the needs of poor and working class families.

[bullwinkle428]

13. ZOMG!! TEH OIL REVENOO WILL PAY FOR THE HOLE IRAK WAR!!

Version 2.0... ;)

[TheKentuckian]

16. Meh...few expected to come out ahead or break even

TARP is small potatos anyway. The concern is the tens of TRILLIONS of unchecked dollars that go out the door from the Fed

That 800 billion is/was sadly a distraction from the real hit. In any event we had to pay the blackmail or the bastards would have froze the credit to the point that an ATM transaction couldn't process and checks couldn't cash for a bit until we gave them even more money and put a larger crater in the economy.

[Political Heretic]

21. Actually, lots of people here expected it.

[AllentownJake]

24. Lots of people have been selling it on DU nt.

[live love laugh]

22. At DU I was one of the few who was against TARP when Bush proposed it.

Now all of a sudden, since Obama inherited it, there's FAULT with it.

How'd the tables turn so quickly?

Hmmmmmmmmmmmm

[TheKentuckian]

31. I was for but admitted it was likely extortion

I stand by it. They would have done exactly what they said was going to happen even if it had to be done artificially. These fuckers don't have to bluff, they create recessions all the time. Like I said earlier, they'd freeze up everything and raise the blackmail fee too. We probably did as well as we could on the money end of it but that should have been used as a ballbat to get them in line.

Of course we don't need the TARP to do that but it would have given some decent cover for charges of socialism and whatnot.

[TiberiusGracchus]

23. Noone really expected TARP to pay for itself, instead we were supposed to use it as leverage

on Wallstreet but instead the administration did NOTHING while the big banks who were "too big to fail" patched up their exposures and paid back the TARP money before we could impose the sort of regulations we need to avoid the financial disaster from happening again.

Instead, thanks to criminally poor judgment on the part of Geitner, Summers et al. we just ended up handing wall street the means with which they could avoid the reckoning which they had so richly deserved after overleveraging our retirement funds and 401ks on absurd risks and murky derivatives.

Hell, they're securitizing derivatives again as we speak. NOTHING has changed. Nothing except that Wall Street managed to avert the disaster they had wrought by passing the buck to main street instead.

[Political Heretic]

25. Actually, lots of people here expected it.

[TiberiusGracchus]

27. Why would you buy something Bush/Paulson was selling back in October? TARP was classic rethug logic

[bertman]

26. AND to pay themselves handsome bonuses for taking us to the brink. Not to mention the

demise of 150 smaller banks in the process.

You are absolutely 100% correct, TiberiusGracchus. Thank you.

[TiberiusGracchus]

28. The worst part is those bonuses REWARDED exactly the behavior that brought this on...

AIG ___INSURED____ the dangerous credit default swaps that were at the heart of the financial collapse. You could've had a struggling family who couldn't pay their mortgage and the hapless bank who lent them the money, multiplied it a million times and it wouldn't have led to the disaster we're living through. That would barely be remarkable.

The reason it all went to shit was because some DUMBASS decided it would be really clever to package that debt as a commodity, INSURE IT as a security, overleverage their cash 1000-to-1 to back it, then circulate it on the market.

The fact that AIG was allowed to continue operating as a legitimate business enterprise, not prosecuted, but were in fact bailed out by the federal government tells everyone in the financial world that ___THIS BEHAVIOR IS ACCEPTABLE AND WILL NEVER BE PUNISHED___.

And now, just as everyone is wishing for an uptick in the economy they are all (yes, ALL OF THEM) reverting to exactly the same sort of dangerous predatory behavior that brought us to the crash in the first place.