
U.S. ends TARP with $15.3B profit - prostoalex
http://money.cnn.com/2014/12/19/news/companies/government-bailouts-end/
======
penrod
It is no surprise that Treasury made a profit on its investments in troubled
companies, since the fact of investing in them effectively rigged the market
in their favor: If the government declares that it will not allow a company to
fail, the company’s borrowing costs are reduced and it now has a competitive
advantage over companies that do not qualify for government intervention.

Of course the qualifications for this special treatment were: being very big,
being politically well-connected, and having taken stupid risks. So every
well-run, medium sized bank that didn’t have an army of lobbyists got screwed.
And now we see that our favorites have prospered and declare “profit!” while
ignoring the red ink for everyone else in the economy.

~~~
lettergram
Although I agree with you for the most part, companies such as Capital One or
Discover who did not have intervention grew much faster and took much more of
the market than other banks. Further, Ford did exceptionally well when the
other automakers were having trouble and I was thoroughly impressed.

~~~
seanmccann
Discover got $1.2 billion. Capital one got $3.6 billion. Both are a small
fraction of the $25 billion Wells Fargo and Citigroup got.

~~~
spuiszis
What's important is the amount of money relative to the size of the
institution. Discover and Capital One were a faction of the size of WF + Citi.
In 2008, WF had $1.2 Trillion in assets[1], Discover has $78bn today (had
trouble hunting down the '08 #).

[1][https://www08.wellsfargomedia.com/downloads/pdf/invest_relat...](https://www08.wellsfargomedia.com/downloads/pdf/invest_relations/wf2008annualreport.pdf)

------
protomyth
"When Congress created TARP, it authorized up to $700 billion for the
programs. That authority was later reduced to $475 billion. To date, a total
of $426.3 billion has been disbursed under TARP. As of November 30, 2014,
cumulative collections under TARP, together with Treasury’s additional
proceeds from the sale of non-TARP shares of AIG6, have exceeded total
disbursements by $14.0 billion7. Treasury estimates that the combined overall
cost of TARP will be approximately $37.5 billion. These estimates assume that
the budget for TARP housing programs will be disbursed in full and do not
include Treasury’s additional proceeds from its non-TARP AIG shares."

[http://www.treasury.gov/initiatives/financial-
stability/repo...](http://www.treasury.gov/initiatives/financial-
stability/reports/Documents/November%202014%20Monthly%20Report%20to%20Congress.pdf)

Reading the press release is nice, but it does help to actually read the
report to Congress.

------
kolbe
...because the Federal Reserve offered the real bailout. TARP's few hundred
billion would be worth far less had the Fed not printed trillions, and used it
to buy all of the banks' bad MBSs at above-market rates.

~~~
marze
Doesn't the purchase of the bank's junky assets at above-market valuations go
by the name "quantitative easing"? Is that what you are referring to?

~~~
vitobcn
Probably, he's referring to this official GAO (Government Accountability
Office) audit report [1] from 2011, which exposed the Fed secretly loaned 16
trillion USD (!!!) to big banks worldwide at 0% rates (afaik, currently fully
unreturned).

Here are the top four [2]:

    
    
       Citigroup      - 2.5 T$
       Morgan Stanley - 2.0 T$
       Merrill Lynch  - 1.9 T$
       BOA            - 1.3 T$
    

Frankly, I'm surprised this didn't receive more attention from the media.

[1]:
[http://www.gao.gov/new.items/d11696.pdf](http://www.gao.gov/new.items/d11696.pdf)
(Table 8, PDF page 144)

[2]: [http://www.sott.net/article/250592-Audit-of-the-Federal-
Rese...](http://www.sott.net/article/250592-Audit-of-the-Federal-Reserve-
Reveals-16-Trillion-in-Secret-Bailouts)

~~~
maxerickson
The numbers in those tables are an example of scary addition. Quoting from the
text describing the table:

 _For example, an overnight PDCF loan of $10 billion that was renewed daily at
the same level for 30 business days would result in an aggregate amount
borrowed of $300 billion although the institution, in effect, borrowed only
$10 billion over 30 days. In contrast, a TAF loan of $10 billion extended over
a 1-month period would appear as $10 billion. As a result, the total
transaction amounts shown in table 8 for PDCF are not directly comparable to
the total transaction amounts shown for TAF and other programs that made loans
for periods longer than overnight._

Your _fully unreturned_ is incorrect, many of the loans used to create those
totals were payed back the very next day after they were made.

A more interesting analysis would show a plot of the outstanding loan balance
each institution maintained over time.

~~~
adventured
Can you provide the information showing that Citi paid back the $2 trillion?
I've found it difficult to locate such.

~~~
maxerickson
It's implicit in the information. Also, the PDCF is closed:

[http://en.wikipedia.org/wiki/Primary_Dealer_Credit_Facility](http://en.wikipedia.org/wiki/Primary_Dealer_Credit_Facility)

------
acd
This is simply not true us as us citizens has not profited from this. The
banks has been printing money like crazy and the American middle class has not
gotten richer while the top 1% has gotten really rich.

Here is a graph from CNN about it
[http://money.cnn.com/2011/02/16/news/economy/middle_class/](http://money.cnn.com/2011/02/16/news/economy/middle_class/)

~~~
adventured
The middle class got one of the world's largest bailouts in the form of record
low mortgage rates. They were able to buy homes with cheap rates, and they
were able to refinance with cheap rates; and that's still true even now, the
homeowner bailout continues. The savings for the middle 50% of Americans is
staggering. So yes, average Americans profited in a big way.

Further, all homeowners got bailed out via a multi-trillion dollar asset
inflation program that re-inflated housing prices. If you own a house, you saw
a massive benefit from that bailout.

~~~
antidaily
That's not a bailout. Coupled with flat wages and rising costs of living,
savings aren't exactly piling up. And home prices are expected to be pretty
flat for the foreseeable future.

~~~
adventured
Would you elaborate on how giving homeowners trillions in wealth by
intentionally re-inflating the housing market, and holding down mortgage
rates, isn't a bailout?

The government & Fed ran programs that directly, by design, benefited all
homeowners, to the tune of $5+ trillion.

~~~
spuiszis
Homeowners aren't benefiting, they've underwater on their mortgages and are
selling for pennies on the dollar. It's Blackstone and a number of other
clever players who've been at this for years [1].

[http://www.bloomberg.com/news/2014-03-14/blackstone-s-
home-b...](http://www.bloomberg.com/news/2014-03-14/blackstone-s-home-buying-
binge-ends-as-prices-surge-mortgages.html)

~~~
adventured
The 80 million homes that are owned in the US, are selling for pennies on the
dollar and are underwater? Quite the opposite, only 8% of home owners are
underwater, and that's a drastic improvement vs the peak of the real estate
collapse. Total home value in the US is near all time record highs, and home
equity has skyrocketed the last three years.

Home equity has climbed by $4+ trillion in just the last 2.5 years, an
increase of 64%; from $6.7 trillion in the first quarter of 2012, to roughly
$11 trillion today.

Home owners have benefited massively from the Fed bailout, via low mortgage
rates and cheap refinancing. Home owners have gained probably $8 trillion
since the bottom, across essentially every market in the US.

~~~
spuiszis
Numbers without sources have no value in an internet forum but from what I'm
taking from your argument (please correct me if I'm wrong), is that: "TARP
worked because, housing prices have increased across the board and as a
result, the whole country is richer and everyone is better off"

You're definitely right about prices have definitely gone up[1] (side note:
Case-Shiller Index isn't close to 64% nationally), but all of this is all on
paper. Residential home sales are still at '08/'09 levels; it's hard to
translate those paper gains into liquidity [2]. I also agree with the low
mortgage rates comment, however, all of the QE money is going everywhere but
the housing market. Even if you have a stellar credit rating, it will be
incredibly difficult to get a loan. Hell, even Ben Bernanke couldn't refinance
his mortgage, which is both ironic and absolutely insane when you think about
it [3]. Six years post-TARP, the housing market and American economy, still
have plenty of structural issues. TARP was a monumental decision that will
forever affect every part of America and housing prices cannot be the only
metric or lens that we judge TARP's performance on.

[1]Case Shiller Housing Index - [http://us.spindices.com/additional-
reports/all-returns/index...](http://us.spindices.com/additional-reports/all-
returns/index.dot?parentIdentifier=6db38316-fd4f-4b21-9db9-61289d88fc9c&sourceIdentifier=index-
family-specialization&additionalFilterCondition=)
[2][https://www.flickr.com/photos/126862837@N04/15451411994/](https://www.flickr.com/photos/126862837@N04/15451411994/)
[3][http://www.bloomberg.com/news/2014-10-02/you-know-it-s-a-
tou...](http://www.bloomberg.com/news/2014-10-02/you-know-it-s-a-tough-market-
when-ben-bernanke-can-t-refinance.html)

------
prokes
At the cost of creating moral hazard, the full impact of which has yet to be
seen.

------
littletimmy
The banks too profited handsomely from TARP, thereby creating a huge moral
hazard. The government gave the banks money, which they used to make profits,
AND then returned money to the government.

Let that sink in for a second, the banks sunk the economy, and the government
helped them make huge profits.

~~~
rhino369
TARP didn't wipe out the massive losses the banks suffered because of
financial crisis. It just allowed them to survive it. The banks who really
fucked up were all sold, essentially at gunpoint, to banks who were still
solvent. Those banks were sold for pennies on dollar compared to what they
were priced at months before.

Of course, without government intervention, they'd get nothing in bankruptcy.

I think losing 95% of your investment is enough to avoid huge moral hazard.

Society benefits because letting them fail sinks the economy much further.

~~~
Zigurd
The positive aspects of saving a banking system don't directly cancel out the
negative aspects of creating moral hazard by doing it in a way that rewards
TBTF banks.

There were multiple options for saving the US banking system, which was
insolvent as a whole, since the supposedly not-insolvent banks would have gone
down the tubes instantly had any of the larger insolvent banks been allowed to
fail, due to their derivatives exposure and other counter-party risk.

For example, the banks could have been nationalized, and the charade of
continuing large management bonuses could have been avoided.

What we got as a result of TARP and related bailout approaches is an
unrepentant risky TBTF system that could explode again, and a compensation
structure that fuels income inequality. Feh.

------
mikhailt
Wait, WTF...

At the end:

> Overall, the auto bailout was the one big money loser for TARP. Even with
> the Ally sale, taxpayers lost about $9.2 billion.

Do they mean it could have been 15.3 + 9.2 billion in the end for the total
$24.5 billions in profit?

I don't think taxpayers lost anything if the program broke even.

~~~
waps
I think the misunderstanding is that Ally Financial is "part of the auto
industry". Yes, really.

So here's where the numbers come from :

1) +15.3 billion : auto industry + financial industry

which is 0.06% per year, for 3.5% over 6 years

2) -9.2 billion : auto industry

3) +1.3 billion : Ally Financial

Therefore:

4) (inferred) -10.5 billion : auto industry - Ally Financial

5) (inferred) +24.5 billion : financial industry TARP

First caveat. Given the risk on the troubled assets, this is a pathetically
bad return over 6 years. These were the worst of the worst, something
everybody else would have demanded something like 13-14% interest per year for
in 2008.

Second caveat, we all know why the finance industry came out ahead (not
necessarily a good publication in this link, just the first reasonable link on
Google for this subject) :

[http://www.financialsense.com/contributors/greg-
weldon/stock...](http://www.financialsense.com/contributors/greg-weldon/stock-
market-fed-balance-sheet-correlation)

So really, the full story is, $426 billion TARP + $3 Trillion in loans to
banks was sufficient to convince the banks to pay $450 billion to the US
government. They have not, of course, paid back the 3 trillion, nor are they
capable of doing so.

Third caveat, a lot of that $3 trillion has gone into stock buybacks,
effectively giving the money to investors in S&P 500 companies (especially
financials). The idea is that the S&P should continue to increase in value,
despite the money flow having stopped (mostly). History teaches though, that
when this happens, a more common result is a stock market crash. That doesn't
happen until loans aren't free anymore though (currently the FED says rate
hike will happen around June).

Frankly if you're in a startup, make sure to have a job at Google, Yahoo or
Amazon or some large player by the time the rate hikes happen.

~~~
pbreit
0.6% per year. Still pretty bad.

~~~
mikeyouse
Meh, it's more complex than that since they didn't put in $426B on day one and
then get out $450B on the last day, you'd have to weight each investment on
its own time frame and run independent returns. Either way, the bailout wasn't
set up to make a profit, so it's fairly pointless to judge the returns..

~~~
gbhn
Except politically if course, where returns were abysmal.

------
dodyg
The US spends 500 billion dollars on defense every year but the biggest threat
to its security is actually its banking system.

~~~
rational-future
The international banking system was the biggest threat to the freedoms of the
colonies from before the Revolution until 1913. With the Federal Reserve Act
of 1913 the banksters gained full control of the country ...

~~~
adventured
Full control of the global economy actually, courtesy of what then happened
post-WW2 with the establishment of the global FRN standard.

They can crash the Soviet Union, tank modern Russia, break the pound, prop up
Japan, build out trillions in manufacturing in China, encourage $20 trillion
in new debt creation in China, crash oil with a stronger dollar, nominally
inflate stock markets with asset inflation programs, rig the commodity market
and libor, squeeze countries into default via currency or bond manipulation,
and so on.

------
higherpurpose
I'm willing to bet this isn't actually true and is misleading. The companies
that got the bailout got other tax breaks and I think they got more money
through other programs as well, which they then used to "pay back TARP". I
really, _really_ doubt the government came out net-positive with the loan.

------
timtas
From a guy who wrote a 768 page book [1] about this:

"The 'small profit', along with most of the so-called 'recovery' of Uncle
Sam’s $426 billion initial investment, was ground out of the backs of
America’s savers and depositors; or it was scalped from the massive financial
bubbles the Fed has generated in the Wall Street casino." [2]

[1] [http://www.amazon.com/The-Great-Deformation-Corruption-
Capit...](http://www.amazon.com/The-Great-Deformation-Corruption-
Capitalism/dp/B00F6IGN52)

[2] [http://davidstockmanscontracorner.com/the-greater-
abominatio...](http://davidstockmanscontracorner.com/the-greater-abomination-
washingtons-lies-about-tarps-success-are-worse-than-the-original-bailouts-
part-i)

------
cnntrolls
So what you're telling me is, adjusted for inflation, the government lost
billions.

[http://data.bls.gov/cgi-
bin/cpicalc.pl?cost1=425.00&year1=20...](http://data.bls.gov/cgi-
bin/cpicalc.pl?cost1=425.00&year1=2008&year2=2014)

Nice spin though. Seems to have duped most of the 1337 h4x0rz here. Tell us
CNN, how much of that QE* money are we getting back?

------
erikpukinskis
3% over six years? I would say that qualifies as losing money. It's not even
keeping up with inflation (10% in the same period).

------
maaku
If only all bailouts went like this...

------
lurchpop
As others have said, moral hazard. This is especially important as they're set
up for the next bailout will to be a "bail-in" where bank accounts will be
debited directly through FDIC-insured accounts. I doubt those losses will get
reimbursed to savers.

------
jokoon
so if I understand it, TARP was not just money given to banks (as michael
moore seemed to explain it in his documentary), it was a loan made by the
government to the big banks.

How did banks manage to pay back this loan ? What kind of condition did the
government give ?

------
fleitz
What they fail to note is all the good that could have come from not doing
TARP, what innovative services might have sprung up instead?

Sure, Detroit might be dead (isn't it already?) but there would also be a huge
infrastructure for Tesla to buy on the cheap.

Imagine a world in which Tesla and other startups are the only car
manufactures in the US? (Well, save for Ford which didn't need a bailout)

What sort of opportunities would there be for FinTech companies sans Goldman,
et al? How many small businesses could have been started with $475 billion?

------
randomname2
The real windfall for the US has been the over $200 billion in bank
settlements since 2008 in exchange for not jailing any bankers.

------
imaginenore
$15.3B profit on $426B investment is 3.59% over 6 years.

If they invested that money in S&P500, they would get 130% back.

------
puppetmaster3
lol. Welcome to a 1984 press release (for the stiff above the neck: wheat
production, up, 18 %).

------
transfire
Give me a break. TARP was just cover for the real bailout.

------
percept
Can haz dividend?

------
_almosnow
Does that profit takes into account inflation and stuff? Because if not the
outcome could be somewhat different. However, even if they broke even, the
potential negative effects that the bailout prevented are huge.

~~~
crazy1van
If we're going to think about the bailout like an investment (like the article
seems to do), even more important than inflation is comparing this return to
other potential returns.

According to the article, the USG put $426B in and made $15.3B. That's a 3.5%
return on that money over 5+ years. As an investment, that seems terrible. If
the USG had just bought an S&P500 index fund on Oct 3, 2008, they would have
made something like +70% (Source: Yahoo Finance). Again, this is just looking
at TARP like an investment by the government.

~~~
intopieces
But the S&P500 includes companies that were, in some way or another, affected
by the bailout. So that comparison is not appropriate.

~~~
fleitz
The government also spent $2 trillion in QE so if that money wasn't in the
market...

~~~
justincormack
QE has been profitable too, so far. Unwinding it may be less so.

~~~
spuiszis
Where are you getting profitability from?

~~~
justincormack
The other comment makes some points, but the bottom line is that the purchased
bonds pay higher interest than the Fed Funds rate, and the value of them has
also gone up a lot as long term rates have gone down. So capital gains and
income over cost of funding.

The capital side might change, as bonds may fall in price before the Fed sells
them.

------
kuni-toko-tachi
The nominal amount of profit is meaningless without reference to the value of
the units relative to actual goods and services. In other words, what is the
value of the currency today vs then?

The idea that the government could just print money and solve the problem is
naive. The costs of that bailout are reflected in a lower living standard and
massive government debt as well as further imbalances.

