Where Did the TARP Money Go?

[piezoe]

In order to be misled, the person has to believe what you wrote in the first place. I did not, and was not.

Second, I would be happy to comment on the FT article and give you my thoughts, if you respond to the AIG counter point I provided you (twice now). You also need to provide the link where it does not require a subscription to read. For some reason, that FT link asks me to login or subscribe.

Done. I just responded. I pointed out the immediate cost of capital in TARP is virtually zero and that whether GM equity remains with the FED, (it wouldn't, the Fed does not want equity of that sort) or goes to Treasury the net is virtually the same because all net Fed profits flow directly back to Treasury anyway! The main portion of the TARP program was a loan program, whereby the government stepped in and acted as a credit provider of last resort during a time when the U.S. Banks were feeling, well, shall we say, a bit verklemmt.

 

[piezoe]

In order to be misled, the person has to believe what you wrote in the first place. I did not, and was not.

Second, I would be happy to comment on the FT article and give you my thoughts, if you respond to the AIG counter point I provided you (twice now). You also need to provide the link where it does not require a subscription to read. For some reason, that FT link asks me to login or subscribe.

My apology for the FT link. I didn't realize it was subscription access when I read it.
I'll see what I can do to get it for you without violating any rules.

 

[Tsing Tao]

Done. I just responded. I pointed out the immediate cost of capital in TARP is virtually zero and that whether GM equity remains with the FED, (it wouldn't, the Fed does not want equity of that sort) or goes to Treasury the net is virtually the same because all net Fed profits flow directly back to Treasury anyway! The main portion of the TARP program was a loan program, whereby the government stepped in and acted as a credit provider of last resort during a time when the U.S. Banks were feeling, well, shall we say, a bit verklemmt.

Alright, if you refuse to acknowledge actual return on investment based on risk, and refuse to acknowledge gifting and creative accounting, then sure. It was profitable. If I could be that creative and not have to adhere to GAAP then I could make anything profitable!

With the sale of the last of its stake in AIG, the Treasury has reported a $5 billion profit. Given the “creative” nature of the accounting used to derive this number, one is inclined to speculate on the motivations behind this announcement. Perhaps the Treasury hoped to reduce the public’s anger over a series of bailouts that appeared to exhibit the worst features of crony capitalism. As described above, Treasury’s estimate neglected to mention that approximately one-third of the AIG stock it sold came from the Federal Reserve rather than the initial TARP investment. Special tax treatment afforded uniquely and singularly to AIG also buoyed the share price — and will continue to provide AIG with billions of dollars in tax liabilities over the coming decade. The Treasury also failed to discount their returns by an amount even remotely reflecting the degree of risk involved. By including these omissions in the estimate it can only be concluded that the Treasury, and thereby United States’ taxpayers, actually lost money in the course of bailing out AIG.​

 

[piezoe]

I was just wondering, where are you getting "your analysis from". It's obviously not yours. And I suppose you told us. But I either missed it somehow, or forgot. TARP was not a private sector operation, it was hybrid Government-private sector. There is far more flexibility there than you can have in a strictly private sector operation. But I'm sure you know that. (You do don't you?) That's way TARP, in conjunction with QE was such a powerful tool.

Go with the Fed and Treasury accounting if you want accurate numbers. Or you can use the nice summary study from Propublica.

 

[piezoe]

Tsing. Sorry I forgot to mention something to you. If you risk adjusted the government returns in TARP, the risk adjusted returns would be much greater. But it is very difficult to accurately assess the risk in this instance. Basically it is th risk of not doing anything and having massive bankruptcies and massive unemployment and financial chaos. If you had ten teams of economists working on this problem you'd get ten different estimates.

 

[Tsing Tao]

I was just wondering, where are you getting "your analysis from". It's obviously not yours. And I suppose you told us. But I either missed it somehow, or forgot. TARP was not a private sector operation, it was hybrid Government-private sector. There is far more flexibility there than you can have in a strictly private sector operation. But I'm sure you know that. (You do don't you?) That's way TARP, in conjunction with QE was such a powerful tool.

Go with the Fed and Treasury accounting if you want accurate numbers. Or you can use the nice summary study from Propublica.

I posted the link several times. I asked you to read the article. You tell me to read your articles, and I do, and then you ignore mine. I don't get it.

Click HERE

 

[Tsing Tao]

Tsing. Sorry I forgot to mention something to you. If you risk adjusted the government returns in TARP, the risk adjusted returns would be much greater. But it is very difficult to accurately assess the risk in this instance. Basically it is th risk of not doing anything and having massive bankruptcies and massive unemployment and financial chaos. If you had ten teams of economists working on this problem you'd get ten different estimates.

That's not the risk adjustment Barry is talking about. Are you unfamiliar with the concept of pricing risk?

 

[piezoe]

That's not the risk adjustment Barry is talking about. Are you unfamiliar with the concept of pricing risk?

Yes, of course, I am familiar with price risk. All traders certainly are. But in this instance the risk is all on the other side. The risk of price declining is made worse by the government not acquiring the security!!! In a sense, the government is stepping in to protect the private sector from price risk.

I admit I haven't read that article, I've just read the excerpts that you've posted. I will promise to read it just as soon as I have a spare moment.

While most, I hope all, traders are intimately familiar with the concept of price risk, a surprising number of them have unbelievably bizarre understandings of how the Fed and Treasury operate. I read those bizarre views everyday on ET.

 

[Tsing Tao]

Yes, of course, I am familiar with price risk. All traders certainly are. But in this instance the risk is all on the other side. The risk of price declining is made worse by the government not acquiring the security!!! In a sense, the government is stepping in to protect the private sector from price risk.

So the government has the responsibility to now step in whenever a stock begins to decline to prevent investors from price risk? You certainly are on board with Fed policy 100% now, it seems! Moral hazard for everyone!

If you haven't read the article, then you have no idea of the risk I (and the author) are referring to. It's pointless to discuss this if you're just going to make up your own definitions and refuse to establish a common argument.

 

[piezoe]

So the government has the responsibility to now step in whenever a stock begins to decline to prevent investors from price risk? You certainly are on board with Fed policy 100% now, it seems! Moral hazard for everyone!

If you haven't read the article, then you have no idea of the risk I (and the author) are referring to. It's pointless to discuss this if you're just going to make up your own definitions and refuse to establish a common argument.

If you want a comment from me, or my opinion, think about what you are saying before you post it, and don't make absurd comments such as: "So the government has the responsibility to now step in whenever a stock begins to decline to prevent investors from price risk?"

I read the entire Ritholtz commentary last night. My thoughts are the same as those who commented on his original commentary in the "Big Picture". It's ridiculous. Is this guy a lunatic? As far as the section 382 ruling goes, what the treasury ruled is the only ruling they could make. Otherwise you get an absurdity. Treasury's comments on this are available on the Treasury website for anyone interested in the details.

I will repeat, for the umpteenth time -- I'm now blue in the face from repeating this-- net profit at the Fed branch banks, and/or the mother ship, flow directly back to Treasury, and from Treasury to the American taxpayer. Not one dime, beyond the 6% dividend earned by the member, private banks on their capital, flows to private banks!!!!!!

As far as the many banks that did go under are concerned, they were insolvent and could not come up with enough assets to meet even the relaxed Fed standards during the crisis. The Fed does not give money to banks! It is always in exchange for certain types of assets, or in the form of short term secured loans, or repurchase agreements. In the case of Treasury, they made secured loans or purchased assets, but Treasury had more flexibility in the kind of assets they were willing to purchased during the crisis. And of course Treasury lost money on some of these assets, made money on others. The net is still to be determined on some Treasury loans/purchases. See the Propublica accounting for details.