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Posts Tagged ‘TARP fund repayment’

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!!


Repaying TARP Funds: Playing Ball With Uncle Sam

Posted by Larry Doyle on April 20th, 2009 10:27 AM |

Last evening on NQR’s Sense on Cents with LD (note: you can listen to audio recording of the show from the BlogTalkRadio player in the right sidebar), I proposed that the Obama administration would not release individual results of the Bank Stress Tests. I further added that I thought the administration may encourage stronger banking institutions to channel funds to weaker institutions. In so doing, these stronger banks – such as JP Morgan and Goldman Sachs – may actually take equity stakes in the weaker banks. Will JP Morgan and Goldman bear the entire risk of those equity stakes? Doubtful. Uncle Sam will likely negotiate terms along the lines of other bank bailouts in which a strong bank provides capital but the government bears the brunt of the losses.

As I write this, Bloomberg reports Bank of America is speculated to need another $10-20 billion in equity capital. BofA’s earnings were reported this morning at .44 earnings per share versus an expectation of approximately .03 earnings per share. Analysts are panning the earnings due to the propsects for ongoing increases in credit losses within BofA’s loan portfolio. BofA’s stock is down approximately 8% in early trading.

If BofA does need another $10-$20 billion in equity capital, where might it come from? In my opinion, in a non-public transferral of capital, those funds may come from JP Morgan and/or Goldman Sachs, and would actually be recycled TARP funds.  Effectively, JPM and GS will merely be a conduit for increased government funds injected into BofA and Citigroup, as well. Remember JPM has $25 billion in TARP funds, Goldman has $10 billion.  If BofA took $15 billion of these funds then Citi could receive $20 billion. What would JPM and GS receive in return? I would think these negotiations would be private and not released, although given that the capital provided is public money all information should be released.  (more…)

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