Is TARP Profitable? - Now It Looks like it might break even.

[kpete]

Is TARP Profitable?The huge government bailout could have cost taxpayers $700 billion. Now it looks like it might break even.
By Daniel GrossPosted Friday, Aug. 28, 2009, at 1:26 PM ET

Former U.S. Treasury Secretary Henry Paulson. Click image to expand.Former Treasury Secretary Henry Paulson The Troubled Asset Repurchase Program, the controversial $700 billion package passed in the heat of last fall's presidential election campaign, wasn't presented as a bailout of a failed system. Rather, then-Treasury Secretary Henry Paulson and his allies touted it as an opportunity for the taxpayer to profit by making investments in name-brand companies. Indeed, during the Great Panic of 2008, American taxpayers reluctantly made a series of very expensive investments in blue-chip companies—Fannie Mae and Freddie Mac, the insurer AIG, General Motors. Since these bailouts were designed to halt failure rather than stimulate growth, the return on most of these efforts has been largely intangible.
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And yet. As we approach the one-year anniversary of the Panic of 2008, it's clear that the actual cost of the TARP will be a fraction of the original $700 billion estimate and that taxpayers are even turning a profit from the central component of the package. The initial effort that Paulson began, and that his successors in the Obama administration continued, had the characteristics of an investment fund. Under the Capital Purchase Program, the government would borrow from the public at low rates—1 percent or so per year—and lend the money to banks at 5 percent, through the purchase of preferred shares. As investors in troubled companies do, the government demanded something extra: warrants, which are the right to buy a stock at a set price. It's kind of like lending money to someone to buy a house but getting ownership of the basement as part of the deal.

The exhaustive spreadsheets at financialstability.gov document the status of the 667 investments made under CPP since last fall. To date, 21 institutions have repaid the principal amount and repurchased the warrants, and 15 more have repaid the principal. Morgan Stanley, which borrowed $10 billion in October 2008, redeemed the preferred shares in June and purchased the warrants for $950 million on Aug. 12, giving taxpayers a return of 12.7 percent, according to SNL Financial. For the 21 companies that bought back the shares and the warrants, the taxpayer received an annualized return of 17.5 percent—which is better than most hedge funds have done in the past year. Since many of the largest financial institutions raised private capital to substitute for government capital, the 36 "exits"—a tiny fraction of the transactions—represent 34 percent of the total. The bottom line: Taxpayers put $204.4 billion into the banks through CPP and have received $70.2 billion in principal, plus about $10 billion in dividends and warrant payments. The repaid money goes back into Treasury's general fund, while a small amount has been put back to work. On Aug. 21, AmFirst Financial Services in McCook, Neb., received $5 million from the CPP. Today, 633 banks still owe the Treasury $134.2 billion.

more:
http://www.slate.com/id/2226517

[senseandsensibility]

1. It's amazing how much actual information you can glean

by reading an article like this. I could watch corporate tv for days and not learn a hundredth of this. Glad to hear some good news, and I hope it continues.

[exboyfil]

2. Get the money back and then break the suckers up

so we will never go through this again.

I still doubt that AIG will come close to breakeven.

Also how much paper is the Fed discount window holding that will turn to garbage?

[Odin2005]

3. Where are all the chicken-littles spewing anti-Fed conspiracy theories?

[scheming daemons]

4. They're upset that our economic system wasn't allowed to fail....

...

...and they wished SO hard too....

[HamdenRice]

7. The "Let It Fail" crowd is extremely upset that more people aren't starving

because their greatest hope was great depression II, and what they look forward to as the "mass die-off" of useless feeders -- namely your friends, family and neighbors.

[Odin2005]

10. The secular Rapture-ists.

That crap is secularized Judeo-Christian eschatology, nothing more. :puke:

[mkultra]

17. the deaths of millions of americans would be a sacrafice they are willing to watch

as long as it creates an environment conducive to political collapse/change. Essentially, what they are wringing their hands over is the hope that this stimulus, and by proxy this president, will fail and effectively send us into a giant spiral that will enable us to abolish the central banking system and move us more towards a traditional collective model.

[FreakinDJ]

5. Oh No - The Short Sellers - The Short Sellers

Soon it will be raining Short Sellers on Wall St, as stock manipulators betting against America's Recovery, aka Short Sellers are finiancially wiped out and jump to their deaths from tall buildings.

[HamdenRice]

6. Let's give credit where credit is due: Barney Frank, Chair, House Financial Services Committee

If 1/10th of the public could understand TARP or the terms of "preferred stock" offerings, Barney Frank would go down in history as the greatest chairman of the House Financial Services Committee in American history.

When Paulson presented his 2 paged TARP bill that gave the Treasury (under himself) almost unlimited powers to expend public money to rescue the financial system by purchasing so-called trouble assets at prices that could not be reviewed by courts, Barney Frank said, we can take a weekend to write a reasonable bill.

Frank produced a 100+ page bill in a few days. That bill contained strong protections for the taxpayers who were funding TARP. They were not iron clad, but it was certainly a shot across the bow to Bush's Treasury that the bailout would not be "free money".

Frank continued to make statements throughout the fall and winter that it looked like TARP would not lose taxpayer money, and might break even or even make a profit.

The other hero of TARP was not an American. It was Prime Minister Gordon Brown. Even after Rep. Frank produced a detailed bailout bill that protected the taxpayer, PM Gordon Brown decided to use a completely different approach in the UK -- partial nationalization, based on the purchase of actual equity (stocks) in the banks.

Brown's tactics in the UK worked wonders, and Paulson, in consultation with Frank's committee and uber-Keynesian Fed Chairman Ben Bernanke decided to use the TARP bill to purchase preferred shares rather than assets from the banks.

It was the work of Barney Frank, Democrat of Massachusetts, and the example of Gordon Brown, Labour Prime Minister of the United Kingdom, that sketched out the way forward, out of the worst financial crisis in the world since 1929, in a way that would actually not only prevent catastrophe, but make money for the taxpayer.

Barney Frank -- you are the unsung hero of this crisis.

Too bad most people know too little about TARP or are too angry to understand what you did.

[The Magistrate]

8. Hear Hear, Sir!

Our Barney is trumps!

[renate]

9. I *always* learn so much from your posts

Thank you!

(p.s. It's kind of unusual these days to hear kind words about Gordon Brown. :) Interesting.)

[Odin2005]

11. Kick for HR, the poster that gets it!

:)

Barney Frank has my gratitude!

[redqueen]

26. +1

[MadHound]

12. Then again, it might not.

This isn't a question that can be answered one year out. Let's see what's going on five, ten years down the road, then we'll know the real answer.

Anything else at this point is speculation.

[Hannah Bell]

14. yep. not sure why the cheers: 204 bill borrowed, 80 bill returned.

= - 120 bill + interest, in my book.

plus the money we don't know about moved through the fed.

big whoop.

but the "thank god it passed" crowd has vested interest in promoting the non-existent recovery & non-existent tarp profit.

[SammyWinstonJack]

16. +1

:thumbsup:

[mkultra]

18. still pining for total collapse i see

don't hold your breath to long. if 80 billion is back this fast, you can bet that breaking even will not be an issue. Of course, its hard to count "secret money" that has "moved through the fed" so you'll just need to craft your own conspiracy on that bit.

[Motown_Johnny]

13. so the total still owed is $134.2 billion?

and if you count the profits made on some of the loans that have already been repaid then the amount the taxpayers is out (to date) is less than this?

Or am I misreading this?

[HamdenRice]

15. Kick for Monday nt

[Romulox]

19. Can any of our "economists" tell us the OVERALL ROI on the entire TARP/Fed bailout package?

:hi:

[HamdenRice]

20. Seems like a minimum of 5% in dividends, plus...

the Treasury seems to really be making money on the warrants. Since no bank has defaulted on TARP and the TARP preferred paid 5%, then the bare minimum ROI is 5%.

With warrants, the Treasury is making very substantial additional returns, in the hedge fund ball park.

:hi:

[Romulox]

21. Well, that's just a shameless fabrication.

"Since no bank has defaulted on TARP and the TARP preferred paid 5%, then the bare minimum ROI is 5%."

This is just a complete an utter fabrication. You are predicting these returns, but I am asking what the return is in present reality. You either can't read, don't understand the distinction between "future" and "present", or are intentionally attempting to mislead people. Which is it? :hi:

PS Remember last week when you lost an argument, and you just began making up bizarre ad homs, e.g.:

HamdenRice: "He said that anyone with more than $1000 in the bank is a "class traitor"?

Remember slinking off without comment when challenged on it? Your fabrications do not persuade any but those who already agree with you; but your lack of integrity is plain to see.

[HamdenRice]

23. Uh, no. It's called "financial literacy."

Read the TARP preferred stock terms. They provide for a mandatory dividend of about 5%.

That means that every bank that took TARP money has been paying 5%. If they don't pay, they are in default. None have defaulted. Therefore, all have paid 5% on their TARP investments.

That is the minimum rate of return on the TARP money.

[Romulox]

24. LOL. You hide your own ignorance (or dishonesty) behind silly namecalling.

"That means that every bank that took TARP money has been paying 5%. "

Again, I am asking for those who claim TARP has generated a "profit" what the present, overall return on investment (ROI) is--not what it might be in the future, if current trends continue. If you can't understand that, then your claim to be a financial guru becomes very suspect!

"That is the minimum rate of return on the TARP money."

Ummm, no. That does not follow at all. Nor is your power of financial prediction of any credit.

BTW, I noticed you ignored the part about the made up ad homs you leveled when losing that argument last week. Add "coward" to "dishonest". :hi:

[HamdenRice]

25. Obviously you did not read the terms of the TARP preferred. It was payable quarterly

So these dividends have already been paid. It seems you don't understand what a return on investment is. The recipients have been paying their dividends -- we are almost at 4 quarters -- and from that you calculate the rate of return.

Obviously, you don't know how to calculate rate of return, or you wouldn't be asking the same question over and over again.

BTW, there is another post that just went up that shows that in addition to the minimum 5% dividend, the warrants were also profitable, and the total rate of return seems to be around 15% -- that from the NY Times.

http://www.democraticunderground.com/discuss/duboard.php?az=view_all&address=389x6430121

I'll rest my conclusions on the authority of the NY Times. What do you rest yours on?

[Romulox]

27. So the math should be simple. What is the current OVERALL ROI on the TARP/Fed bailouts???

Surely, anyone claiming a profit for the TARP should be in command of those basic figures? Or are you punting again? (Still not man enough to address the fabricated ad hominems you've posted here, huh? That's really less than honorable. :hi: )

"I'll rest my conclusions on the authority of the NY Times."

This is a naked appeal to authority. One of the basic logical fallacies.

"What do you rest yours on?"

My own strained understanding of the matter. You've certainly been no help in that respect!

[HamdenRice]

28. Well at least you admit your "understanding" is "strained"

I agree entirely with that. Don't hurt your brain, though.

As I've said, it's easy to calculate the minimum return -- 5% -- because the TARP preferred had a mandatory dividend which the banks have paid.

It can be higher than that because in each case, the Treasury also purchased warrants. You know what those are, right?

Because the value of warrants is based on the value of the bank's stock, the return on each bank is different, but generally is based on the increase in value of the stock from the value of a bank on the brink of going under, to the value of a stabilized bank. It seems that the warrants have been even more profitable than the preferred.

So I can tell you the return on investment is no lower than 5% but can be much higher. Overall, the NY Times says it is about 15%.

Btw, in the same way you don't know how to calculate return on investment, you don't know what the term, "appeal to authority" means. A false appeal to authority is when you write, Michael Jordon recommends Crest toothpaste. Michael Jordan has no expertise on dental matters. An appeal to Jordan's expertise on dental matters is a false appeal to authority. But if you say the financial reporters of the NY Times have carried out a study of the returns on TARP and calculate it to be 15%, that is not a mistaken appeal to authority.

You could look it up. It's in Wikipedia.

Your critique of appeal to authority is sometimes called, "the moron's critique of appeal to authority" because it presumes that all expert authorities are suspect. For example, if you say the Bible says that the world is only 5,000 years old, and that geologists are wrong because they're "just scientists" and citing them is an "appeal to authority" you are engaging in the "moron's critique of appeal to authority." Same with dismissing financial reporting from the NY Times.

[Romulox]

29. Ah yes! Point scored. (Still can't do the math, huh?)

"As I've said, it's easy to calculate the minimum return -- 5%"

Apparently it's harder to do math when it has variables (who'd have thunk?) One of those variables is that the least healthy of these banks may be truly insolvent and unable to repay TARP funds, or redeem warrants (again, what a world!)

You are claiming a "profit" for the TARP when the vast bulk of the monies are still outstanding, with no guarantee of repayment. That is what this entire romp around the maypole is about--you want to assert your prediction that the TARP will be profitable from scant, self-selected data.

"So I can tell you the return on investment is no lower than 5%"

You can tell me that, but you can't guarantee the actual accuracy of that information. Again, your powers of prediction of financial markets obviously have no currency (pun intended, though feel free to spike that "blooper" down too! :silly: ) What's more distressing is that you don't seem to understand the distinction!

"But if you say the financial reporters of the NY Times have carried out a study of the returns on TARP and calculate it to be 15%, that is not a mistaken appeal to authority."

No, an Appeal to Authority is to say "I'll rest my conclusions on the authority of the NY Times," without displaying any comprehension of their argument.

EDIT: Are you really not going to address the made up ad hominems? I at least had some modicum of respect for you before, but making up bizarre accusations wholecloth, then stonewalling when asked about them is really disrespectful. Not just to me. But to you, too.

[Romulox]

22. BTW, I'm going to take this as a tacit admission that you are unable to calculate the present ROI

Wake me if you can figure it out, k?

:boring:

:silly: