Are You Kidding? CBO's Laughable TARP Claims

The Congressional Budget Office has released its first statutory report on transactions under the Troubled Asset Relief Program (TARP). It appears the government managed to spend $247 billion in cash under TARP through December 31st. But this is not Washington’s only “accomplishment.” The bureaucrats score major points for creativity as well. Consider CBO’s attempt to portray more than $180 billion of the bailout as something other than a subsidy:

[TARP] transactions totaled $247 billion. Valuing those assets using procedures similar to those specified in the Federal Credit Reform Act (FCRA), but adjusting for market risk as specified in the EESA, CBO estimates that the subsidy cost of those transactions (broadly speaking, the difference between what the Treasury paid for the investments or lent to the firms and the market value of those transactions) amounts to $64 billion.

As the following table shows, the CBO claims that only about $5 billion of the $20 billion it gave to Citigroup was a subsidy. Even more stunningly, of the $178 billion the government has given away to 214 different institutions, only $32 billion is considered a subsidy. The other $146 billion is “market value.” Of course, if the latter amount really reflected the fair market value of what the government received in exchange for its cash, those 200+ institutions would not have needed a government bailout in the first place.

Here is the CBO’s accounting:

Not only is the CBO’s accounting tortured, but it is also rather “high level.” The CBO provides no detail behind the estimates shown above. We wonder why.

One thing appears certain: If the CBO can declare that more than $180 billion of the government’s $247 billion spent in TARP funds is not a subsidy, there is little reason to believe the government will not keep spending at a furious pace. After all, it can count on the CBO to keep supplying some of the world’s most creative accountants.

Comments

[morph366:]

Accusing the CBO of engaging in creative accounting is a bit unfair - rather they should be seen as having different time horizons. In the real world which traders and investors inhabit mark to market accounting has become the accepted benchmark, but in public accounting its inter-generational accounting that seems to have become the norm. Why mark a position as a loss when you have aeons to become whole again.
This gives a whole new meaning to the saying of that much revered economist - "In the long run we're all dead".

Jan 18 09:39 AM

[DenisL:]

They are government bureaucratrs hired by politicians.

Their lips are moving ( or in this case their fingers are typing) THEREFORE they are lying.

What else is new?

Buy gold and forget about this nonsense.
Oh and I guess you could keep 3 months worth of food on hand, buy a shotgun to defend it (AND a LOT of shotgun shells) AND pray!

Jan 18 10:06 AM

[kruser53:]

Beware of smoke and mirrors, especially when the smoke is coming from a fire which is consuming credibility.

Jan 18 10:46 AM

[smiley1:]

All crooks...CBO must have asked the Fed for help with its accounting for these 'Toxic Assets'...what an oxymoron...who else would have invented that term...gnomes...

Jan 18 10:50 AM

[Sentinel:]

It's really...really simple.

Most of our banks are insolvent or would be without TARP.

There have been 100's of TRILLIONS of dollars of derivitives produced over the last decade.

They have now evaporated. And the top 20 banks in this country have what....8-11 trillion in assets?

How much of those assest are real? And even if they were all real how can 8-11 trillion stand up to 100's of TRILLIONS of lost paper?

In fact the net worth of all the world's stock markets is @80 trillion. And a good chunk of that valuation was in fake derivitives.

That's why TARP will continue all year long until someone in government finally decides to level with everyone and call a spade a spade......

It's NATIONALIZATION OR BROKE IN 2009

Jan 18 10:56 AM

[donzelion:]

"As the following table shows, the CBO claims that only about $5 billion of the $20 billion it gave to Citigroup was a subsidy. Even more stunningly, of the $178 billion the government has given away to 214 different institutions, only $32 billion is considered a subsidy."

Didn't you know, giving food to poor people is not a "subsidy" but an investment? Handing out houses is a "troubled asset program"?

The problem with numbers this large is that the most asinine expenditures will generate some sort of positive impact no matter what. Say the government spent $2500 to provide every American with a one-week vacation in Disneyland. End of a year, we'd have made a massive "investment" in tourism industries, travel infrastructures, maintenance, entertainment, etc. - and Congress could boast about creating tens of thousands of jobs.

Jan 18 11:11 AM

[discov:]

Our government numbers may be more falsified than china now.

Jan 18 01:32 PM

[luckijack:]

I just read the CBO report and find it pretty credible. The author above and the various commenters apparently do not understand that these TARP funds are not a gift, but loans with interest bearing notes (preferred stock) that must be paid in full -- unless, of course the recipient falls into bankrupcy. It is my judgment that the Government may actually make money on the TARP program. Especially if and when AIG is able to repay it TARP funding, and it's stated goal is to do so as soon as it can.

The disturbing aspect of the program to date is that while bank-to-bank credit has eased, credit market for businesses and individuals has actually tightened. Apparently, the Obama Administration intends on leaning hard on banks to reverse this trend, and this is needed.

If you are looking for giant financial sucking sounds, you might look at the stimulus package. While it may create some stimulus, it will raise significantly the deficit and unlike the TARP will not be repaid directly by its recipients.

Jan 18 02:12 PM

[Evan Williams:]

Luckijack said:

"I just read the CBO report and find it pretty credible. The author above and the various commenters apparently do not understand that these TARP funds are not a gift, but loans with interest bearing notes (preferred stock) that must be paid in full -- unless, of course the recipient falls into bankrupcy."

Since there is no transparency in any of the institutions that have received TARP funds, it's a safe bet to assume that many, if not most, of these institutions are actually already bankrupt or will be shortly. When BofA, Citi, AIG are finally destroyed by this financial climate, the government will not be paid interest on these TARP loans and will only be repaid whatever capital can be recovered by auctioning off the carcasses of these banks... which will be worthless.

Jan 18 09:22 PM

[huskerbob:]

Yes luckijack, I'm glad you have faith in the credibility of our government in the form of this CBO report. And if you are buying that one, perhaps you also find factual the annual government report from NORAD on the whereabouts of Santa Claus?
When the government profits from the TARP program, I will join you in following Santa's flight through the night, as my faith will have been restored!
God bless us every one.

Jan 18 09:51 PM

[jksisco:]

TARP, a more accurate title would be SAM, Smoke and Mirrors. The absolute best outcome of all this doubletalk and behind closed-doors manipulations will be an awakening by the People of this once respected nation. Well, at least one can only hope?

Jan 19 07:43 PM

[abeoman:]

The latest TARP fiasco raises several concerns for which I do not see the considerable efforts to curb the Wall Street appetite of greed. Greed often has no objectivity and considering the bailouts imminent to forge the economy in the right direction, then in my opinion a few questions should be raised regarding the use of TARP funds.

Have these questions been raised in the current TARP discussion? They either have and their consequences been ignored or they are in progress of being discussed.

1. Should TARP funds be utilised to acquire other companies?

2. Ultimately, are TARP funds stimulating the markets or the economy?

3. Should TARP funds be restricted from creating company stock buy backs?

4. Should Board of Directors, Executive Management and related parties and entities disclose their share positions prior to TARP funding and post TARP distributions or should TARP restrict share activity all together by BOAD and executive management?

5. Should there be a seperate TARP related fund to deal with market related equity positions on behalf of the TARP recipients and a seperate TARP bailout fund for "operational related"( actually lending to businesses,etc. street funding) activities?

6. Should the purpose of use for the TARP funds be disclosed explicitly and directly as in covenants created during a vc, mezzanine or any other venture or should this loan constitute no interference?

I sincerely hope these questions are being raised and discussed.

Jan 23 07:47 PM

[legmaker:]

I guess the most disturbing issue with respect to the need for the TARP, is how much has the world's economy really grown over the last decade. When you look a the amount of money garnered in the financial arena over that time frame, and then look at how much has and will evaporate over that time, it seems that the world wasnt and US economy wasnt really growing, it was leverage that was growing. So how much of this money was really distributed to the CEO's of these companies, and if so was all of the profits and growth within the companies just leverage, that will evaporate in a couple years time. Im sure at some point everything will level out with respect to valuation, but when it does I think we will realize that individual investors were not gaining anything over the long haul and maybe, just maybe, we cannot have faith in Wall Street as we are going to be held holding the debt and nothing for our investments. I am a younger investor, and have not been hurt as bad as my father or some of the people who work for me that are in their late 50's. But it is worrisome with respect to what some of these people will do when it comes time to retire. Most are talking about working into their seventies, even though, just a year ago they had enough money to retire. If this is so it seems awefully unfair to those that thought they would be able to enjoy their retirement at 65 like they thought. It is not my grandfathers economy that is for sure. God Bless everyone.

Jan 25 03:19 PM