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Archive for the ‘TARP’ Category

Judd Gregg Exposes Peter Orszag

Posted by Larry Doyle on February 3rd, 2010 10:10 AM |

Are we a nation of laws or not? Do we merely do what is expedient and politically correct as opposed to what is right and principled? Do we allow political polls and political winds to override the pursuit of truth, transparency, and integrity? All too often, our nation gets so caught up in the moment that we lose sight of who we truly are, from where we have come and where we hope to be going. As a result, I believe we have lost both our moral and economic compass.

I broach these questions and make that assertion based on yesterday’s engagement (video clip below) between Senator Judd Gregg (R-NH) and Peter Orszag, White House Director of the Office of Management and Budget.

As a backdrop to Gregg exposing Orszag’s arrogant and presumptuous demeanor, please recall that the law enacted to implement the TARP (Troubled Asset Recovery Program) required that any funds recovered through this program be effectively returned to taxpayers to pay down our national debt. That’s the law.

Do the laws of our nation stand for anything or can they be presumptuously overrun at the administration’s whim and fancy?

I commend Judd Gregg for standing his ground and exposing Peter Orszag in this engagement. America deserves to witness this undressing because the very core of Gregg’s argument is the lack of respect so many in our country have for principle. You may feel differently and believe Orszag’s goals are worthy. I would ask you if the ends justify the means. Do you really want to go there?

What do you think of Judd Gregg? Peter Orszag? Are we a nation of laws or not?


More Insider Trading on Wall Street?

Posted by Larry Doyle on February 1st, 2010 1:56 PM |

Profit over principle. Where does one draw the line?

I worked with some incredibly sharp individuals on Wall Street. In fact, two individuals with whom I worked were banned from casinos in Vegas because of their ability to count cards. While casinos do not appreciate card counters, I would not include that skill as a negative in my thoughts about their personal character. To be perfectly frank, both of these individuals were gracious, charitable, and professional. The overwhelming majority of those with whom I worked were also true professionals.  That said, the very nature of the Wall Street enterprise attracts an element that prioritizes profit over principle. I am reminded of that fact again today. How so?


Treasury Leaves TARP on the Field

Posted by Larry Doyle on December 9th, 2009 12:15 PM |

We learned all we need to know about the economy today. How so? The fact that Treasury Secretary Geithner has chosen to extend the TARP (Troubled Asset Relief Program) to October 2010 is a clear indication that our economy, primarily housing and employment, needs Uncle Sam’s support.

While Geithner couches this support in terms of “just in case,” we should not be so naive. The American Banker highlights this development in writing, Treasury Extends Tarp to 2010:

The Treasury Department announced Wednesday that it would extend the Troubled Asset Relief Program to Oct. 3, 2010.

In a letter to lawmakers, Treasury Secretary Tim Geithner cited improvements in the economy but said Tarp must be extended due to remaining challenges for homeowners and small businesses.

That’s right. The outlook for housing and jobs remains challenged, all assertions to the contrary aside.

“This extension is necessary to assist American families and stabilize financial markets because it will, among other things, enable us to continue to implement programs that address housing markets and the needs of small businesses, and to maintain the capacity to respond to unforeseen threats,” Geithner wrote.

Unforeseen threats? Come on, Tim. Be straight with us. Try ongoing bank failures due to losses on loans. (more…)

Elizabeth Warren Highlights Washington’s Losing Battle on Housing

Posted by Larry Doyle on October 9th, 2009 9:21 AM |

Who in Washington will give you a straight answer? Elizabeth Warren.

Who is Elizabeth Warren? Her Wikipedia bio reads:

Elizabeth Warren

Elizabeth Warren

Elizabeth Warren (born 1949) is the Leo Gottlieb Professor of Law at Harvard Law School, where she teaches contract law, bankruptcy, and commercial law. In the wake of the 2008-9 financial crisis, she has also become the chair of the Congressional Oversight Panel created to oversee the U.S. banking bailout, formally known as the Troubled Assets Relief Program. In 2007, she first developed the idea to create a new Consumer Financial Protection Agency, which President Barack Obama, Christopher Dodd, and Barney Frank are now advocating as part of their financial regulatory reform proposals.

In May 2009, Warren was named one of Time Magazine’s 100 Most Influential People in the World.

Ms. Warren consistently takes no prisoners or provides no pandering in making honest assessments of the interaction between Washington and Wall Street. She has called the banks on the carpet. She has called Secretary Geithner on the carpet. She has called Congress on the carpet. Why? A general lack of honesty, integrity, and transparency in dealing with the American public.

When she speaks, I listen.

What did she have to say this morning? In commenting on a recently released report on the effectiveness of government programs to support housing, Warren questioned the scalability and the permanence of the impact of the TARP funding. Bloomberg provides further color in writing TARP Oversight Group Says Treasury Mortgage Plan Not Effective. The report highlights:

“Rising unemployment, generally flat or even falling home prices and impending mortgage-rate resets threaten to cast millions more out of their homes,” the report said. “The panel urges Treasury to reconsider the scope, scalability and permanence of the programs designed to minimize the economic impact of foreclosures and consider whether new programs or program enhancements could be adopted.”

New programs or program enhancements? Yesterday I opined “Washington Needs a New Housing Model” and wrote:

While the administration swims upstream on this issue, bank policy of tight credit and restrictive lending only further exacerbates the housing market. Make no mistake, though, banks are taking that approach to tight credit at the behest of regulators who know the level of losses in the banking system and are trying to preserve the industry as a whole.

I like a rallying equity market as much as anybody, but I wouldn’t spend any paper gains just yet. Why? The new housing model is displaying that:

“As defaults become more common, the social stigma attached with defaulting will likely be reduced, especially if there continues to be few repercussions for people who walk away from their loans,” concluded Sapienza.  “This has an adverse effect on homeowners who do pay their mortgages, and the after-effects of more defaults and more price collapse could be economic catastrophe.”

This model needs some quick-dry crazy glue, which could only be applied in the form of a serious principal reduction program. Banks would take immediate and massive hits to capital which they clearly won’t accept.

So how can we generate some support for housing?

Aside from a principal reduction program, the penalty for those who would strategically default on their mortgage needs to be far more onerous.

The principal reduction would negatively impact bank earnings. Too bad. The banks are currently feeding at the taxpayer trough and would not be here without the bailouts. The individuals who are capable of making their payments need to accept the moral responsibility that is embedded in a contract.

Given the massive violation of moral hazards and breaking of contracts by Uncle Sam, that old man does not have a lot of credibility on that front.

What do we really learn here? Ultimately, the market is the market and efforts to manipulate or support a falling market will only be temporary. The market needs to find the clearing level where private money will purchase properties. That private money will wait while Uncle Sam continues to try to prop the market.

In the meantime, do not expect any meaningful support for housing.


Did Uncle Sam Intentionally Mislead the American Public?

Posted by Larry Doyle on October 5th, 2009 12:40 PM |

“You can’t handle the truth!!”

While the above line by Jack Nicholson in A Few Good Men may have made for good theatre, it makes for lousy public policy. Regrettably, Uncle Sam has utilized that approach in its initial disbursement of funds via the TARP (Troubled Asset Recovery Program).  That opinion is not strictly mine (although I do agree with it), but rather that of Neil Barofsky, the inspector general charged with overseeing the bank bailouts.

The New York Times sheds light on Barofsky’s feelings this morning in writing, Inspector’s Report on Bailouts Says Treasury Misled Public:

The inspector general who oversees the government’s bailout of the banking system is criticizing the Treasury Department for some misleading public statements last fall and raising the possibility that it had unfairly disbursed money to the biggest banks.

A Treasury official made incorrect statements about the health of the nation’s biggest banks even as the government was doling out billions of dollars in aid, according to a report on the Troubled Asset Relief Program to be released on Monday by the special inspector general, Neil M. Barofsky.

There is NO doubt that Uncle Sam, in the persons of Hank Paulson, Ben Bernanke, Tim Geithner, Larry Summers et al, has little confidence that the American public can handle the truth about the overall health of our banking industry.

That said, the lack of transparency and integrity as highlighted by Mr. Barofsky does not come without a cost. What is that cost? Lessened confidence in our regulators and our markets going forward.

I addressed these very topics of financial regulatory transparency and integrity on my radio show last evening. In the process of interviewing former SEC attorney Genevievette Walker-Lightfoot, I made the following comment in regard to the statement put forth a month ago by SEC Inspector General David Kotz dealing with the SEC’s failures on the Madoff investigation. I said:

If that is the kind of face saving self-serving approach, people are going to call foul on it. The real cost is, and I think we are bearing this cost right now whether with the SEC or with FINRA, if you’re not going to be honest with us how can we fully trust that you’ll be honest on a going forward basis?

Now I’ll grant you I guess we don’t have much choice. What are we going to scrap the entire SEC or scrap the entire FINRA and start from scratch? Some people may say that’s what we want to do, but that’s obviously not going to happen.

It does get to the point where there’s got to be total transparency. There’s got to be total integrity. There’s got to be total accountability and if people haven’t done the job or are incapable of doing the job then you know what, for the long haul – and I’m not talking about the next six months but rather the next ten, fifteen, twenty years – people got to go and other people got to come!!

Genevievette Walker-Lightfoot responded:

“I agree. That’s true.”

How about you, what do you think? Can you handle the truth? Wouldn’t you like to be given the opportunity?


Note: the views expressed by Genevievette Walker-Lightfoot during last night’s show are her own personal views and do not in any way reflect her position as an employee of the Federal Reserve Board.

TARP Transparency Is a Joke as Uncle Sam’s $81 Billion Investment in Automakers Unlikely to be Recovered

Posted by Larry Doyle on September 9th, 2009 7:52 AM |

Do the ends justify the means? Is the American taxpayer better off not knowing how his money is being spent when rescuing private corporations? Is the Obama administration’s claim of transparency a mere facade? I believe a strong case could be made that all of these assertions are true in reviewing the likelihood of the American taxpayer recouping taxpayer funds injected into GM and Chrysler.

While government pundits and market analysts will crow about positive returns on TARP funds injected into banks that never truly wanted the money in the first place (Goldman Sachs and JP Morgan amongst others), they have little to say about the TARP money which will not likely be coming back from the automotive industry.

I highlighted this point on June 30th in writing “The TARP Has a $159 Billion Loss”:

Of the $699 billion in total capital, $142 billion has yet to be committed. Of the funds already allocated, Uncle Sam has incurred a total cost of $159 billion. What does that mean?

Recall the number of times that government officials told taxpayers that we would make money on investments in AIG and the like. Well, so far we’ve lost $159 billion dollars across all our TARP investments. The loss is calculated as the difference in funds committed and allocated to securities and the market value of those securities. That loss represents 36% of the funds committed and actually allocated.

Where do a large percentage of the funds unlikely to be recovered reside? Detroit, as in GM and Chrysler.

Bloomberg sheds further light on losses embedded in the TARP in writing U.S. Taxpayers Unlikely to Recover Auto Investment, Panel Says:

U.S. taxpayers are unlikely to recover their $81 billion investment in General Motors Co. and Chrysler Group LLC and were “left in the dark” on specifics of a decision to aid automakers, a congressional panel said.

The report didn’t estimate how much of taxpayers’ aid to the auto industry will be recovered. The panel said GM stock would need “highly optimistic” returns in order for the full investment to be repaid.

The report of the panel, which oversees the Troubled Asset Relief Program, raises questions about the Obama administration’s transparency in aiding automakers and challenges the Treasury Department to make more disclosures about company decisions and the government’s future role.

“Congress and ultimately the American taxpayer have been left in the dark concerning details of Treasury’s review process and its methodology and metrics at a time when Treasury committed additional TARP funds to these companies,” the panel said.

“The Treasury auto team failed to disclose to the public both the factors and criteria it used in its viability assessments, the scope of outside involvement in its evaluations, and its basis and reasoning for selecting particular benchmarks,” according to the report. “Simply, its disclosures did not go far enough.”

As these companies try to recover, taxpayers should not expect a return of any of these $81 billion. Taxpayers should also not expect transparency from Washington. Being truthful and transparent are not exactly consistent with the ‘Washington way.’


TARP Warrants a Review

Posted by Larry Doyle on July 28th, 2009 5:09 PM |

How is Uncle Sam doing with his TARP investments? Recall that there are two components of the TARP (Troubled Asset Relief Program):

1. Straight capital injections

Treasury would have us believe that we are doing fine on these disbursements given returns from a select few institutions. Neither Treasury, other government officials, nor the media choose to highlight that as of June 30th, the TARP disbursements had a $159 billion loss. Although Treasury defines this ‘loss’ as a ‘subsidy,’ Sense on Cents classifies the negative difference in dollars allocated versus market value of investments as a ‘loss.’

Read my full review:  “The TARP Has a $159 Billion Loss”

2. Purchase of warrants

What is a warrant? From our trusty Investing primer, we learn a warrant is:

A derivative security that gives the holder the right to purchase securities (usually equity) from the issuer at a specific price within a certain time frame. Warrants are often included in a new debt issue as a “sweetener” to entice investors.

These warrants were purchased last Fall at the time of allocating capital to a wide array of financial institutions. How is Uncle Sam doing? Should he exercise these warrants? Are they ‘in the money,’ meaning the current price of the stock is higher than the ‘strike price?’ Warrants also have time value. That is, the amount of time until the warrant expires. TARP warrants were generally 10 year warrants. That is a long time and represents a lot of value for the taxpayer.

Let’s check Subsidyscope, our fabulous link in the right sidebar here at Sense on Cents, to monitor a whole host of developments going on in Washington with OUR tax dollars. In regard to the TARP warrants, we learn:

Based on the closing prices on July 27, 2009, only 37 of the 234 warrant transactions listed on Subsidyscope are in the money. Some of the biggest recipients of TARP funding are in the most difficult financial situations. For example, the closing stock price for AIG was $13.00 on July 27, which is 420 percent below the strike price of $2.50 of the warrants that the government received on November 25, 2008; and Citigroup’s closing stock price of $2.69 on July 27 is 85 percent below the strike price of $17.85 of the warrants the government received on October 28, 2008.

While AIG’s stock valuation may appear to be in the money, please be aware that AIG recently executed a reverse stock split.

Readers can regularly check these TARP warrants at Subsidyscope’s Monitoring the Value of the TARP-Funded Warrants.

Additionally, not unlike many brokers who tout their winners while disregarding their losers, please do not allow Secretary Geithner or any other government official to ‘blow smoke’ about how well we are doing with our TARP investments.

A $159 billion loss combined with only 37 of 234 warrants being in the money after an enormous rally in our equity markets is not exactly a stellar performance.

Please utilize the tools at Sense on Cents and Subsidyscope to keep Uncle Sam honest as we all navigate the economic landscape.


Uncle Sam Giveth and Taketh

Posted by Larry Doyle on July 11th, 2009 7:46 AM |

Give a penny, take a penny? How about give $50 billion, take $50 billion, if not a lot more . . .

Welcome to a Saturday morning chapter of “Uncle Sam Giveth and Taketh.”

While reviewing a number of news outlets, I was struck by the juxtaposition of two reports from The Washington Post:

White House Eyes Bailout Funds to Aid Small Firms and Democrats Agree on Tax Hike to Fund Health Care.

Standard fare, right?? Let’s not be quite so hasty.

From the former, we learn that:

The Obama administration is developing an initiative to take money from the $700 billion rescue program for the banking system and make it available to millions of small businesses, which officials say are essential to any economic recovery because they employ so many people, according to sources familiar with the plan.

The effort would represent a striking shift from the rescue program’s original mandate, since it would direct billions of bailout dollars toward a plan that aims more at saving jobs than at righting the financial system. Some economists estimate that small businesses, defined as firms with fewer than 500 workers, employ most of the country’s workforce.

From the latter, we learn that:

House Democrats agreed yesterday to raise taxes on the wealthy to pay for a sweeping expansion of the nation’s health-care system, proposing a surtax on the highest earners that could send the top federal tax rate toward 45 percent.

Republicans assailed the idea, saying the new tax would fall heavily on small-business owners, who tend to report business income on their personal tax returns.

Don’t think for a second that our political wizards in Washington are capable of precision execution on either of these fronts. Given the size of the respective programs, I think jobs saved (via increased SBA assistance) versus jobs lost (via higher taxes on small business) will be at best a push.

A few questions and comments:

1. How does  Uncle Sam, in the name of the Small Business Administration, determine who receives assistance? Can Uncle Sam be influenced in picking winners and losers? Hmmmm . . .

2. Does it even matter anymore that the TARP legislation was not written for purposes of allocating funds to small business? Does the rule of law count for anything in our country?

3. On the tax front, to think the Obama administration is going to increase taxes on upper incomes (both individuals and small businesses) to as high as 45% and not touch tax rates below that is beyond naive. There is NO doubt in my mind the taxman cometh across the board at the federal, state, and local levels.

Thoughts and opinions, especially from those involved in small business, are deeply appreciated!!


The TARP Has a $159 Billion Loss !!

Posted by Larry Doyle on June 30th, 2009 3:27 PM |

The American taxpayer was going to make money on the investments in assets related to Bear Stearns, AIG, Citigroup, Bank of America, ad nauseum, correct?

Is it even possible to track the massive government outlays across the entire economic landscape? Is it further possible to measure the actual cost of the outlays as a percentage of the overall subsidies? Can we navigate this terrain without getting bogged down in the midst of a thicket of government data and statistics? You have come to the right place.

Our trusty financial primer, Subsidyscope (right sidebar here at Sense on Cents) has just released a report, entitled Estimated TARP Subsidy Rate Rises, which links to a report from the Congressional Budget Office highlighting all aspects of the TARP (Troubled Asset Relief Program).

Just as “you can’t tell the players without a program” when attending a sporting event, “you can’t track Uncle Sam without Subsidyscope and Sense on Cents.”

What do we learn? Uncle Sam is still holding some TARP firepower. The TARP was launched as a $699 billion capital commitment. If you recall, the TARP legislation was passed as a vehicle to purchase toxic assets from banks. It has moved a long way away from that.

The TARP now covers 4 initiatives:

1. capital purchase and repayments from financial institutions

2. additional support for large financial institutions

3. financial assistance to automakers and related businesses

4. other actions, such as mortgage modification, TALF subsidies, and purchasing securities backed by Small Business Administration loans.

To be perfectly frank, I think it is very plausible that the actual capital commitments and activities ongoing under the TARP may not have met the pure letter of the initial legislation. That said, in an environment in which so many initiatives are capital constrained, there is no real legislative pushback. When was the last time we worried about the spirit or letter of our laws when we had bigger issues concerning money?? Money is more important than legal precedents, correct? We’ll get into that on another post.

On the numbers front:

Of the $699 billion in total capital, $142 billion has yet to be committed. Of the funds already allocated, Uncle Sam has incurred a total cost of $159 billion. What does that mean?

Recall the number of times that government officials told taxpayers that we would make money on investments in AIG and the like. Well, so far we’ve lost $159 billion dollars across all our TARP investments. The loss is calculated as the difference in funds committed and allocated to securities and the market value of those securities. That loss represents 36% of the funds committed and actually allocated.

Not that anybody in the media or the financial industry would want you to know that.

Program, here….get your program….step right up…program, here!!

Enjoy the ballgame, folks!!


Where Will TARP Money Go? Let’s Start in Hartford

Posted by Larry Doyle on June 9th, 2009 3:03 PM |

Secretary Geithner and President Obama today hailed the repayment of $68 billion in TARP funds as a clear indication of the success of the overall financial recovery programs implemented by the administration. Well, as those familiar with the “shell game” know, in order to keep the game going it is critically important to display some winners on a regular basis.

How do we know the TARP funds were utilized properly and everybody won on this government investment? We don’t, despite what Barack says. Money is fungible. The system was saved, with no small thanks to the FASB’s relaxation of the mark-to-market. These TARP recipients are designated as the winners. Meanwhile, the system still has upwards of $500 billion – 1.25 trillion in embedded losses, depending on whose projection you would like to use.

In my opinion, I believe Barack and team would have preferred to keep the TARP funds within these financial institutions. That said, there are other factors at work here. What are they?

1. when the TARP legislation was passed last Fall during the Bush administration, it set specific ground rules necessary for repayment. Barack, Tim, and team would have run the risk of flouting that legislation if they did not allow some firms to repay.

2. the administration will still be able to wield significant influence over these firms via a number of other Fed backstops already in place.

3. not being widely publicized but of very real significance, the administration will need these funds in other firms. What firms? Let’s drive on over to Hartford.

As the WSJ recently revealed, Hartford Chief Expects TARP Funds Soon:

It is expected in the next few weeks to get as much as $3.4 billion in funds under the Treasury’s Capital Purchase Program.

Hartford’s stock was down today as it is being downgraded by equity analysts at Citigroup due to management issues.

Recall that Hartford was one of 6 insurance companies that received thrift status by acquiring a controlling stake in a small institution. As such, these firms became eligible for TARP funds. In my opinion, once the TARP dam is broken with one insurance company, the stigma is lessened for others to acquiesce in accepting these funds.

What might be the next stop after Hartford? Perhaps Newark (Prudential Insurance) or Philadelphia (Lincoln Financial). Sense on Cents will monitor where the TARP train moves next.


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