Yes, The TARP Is Leaking

It seems I have been a bit too positive of late... as American taxpayers just took a $2.3 billion hit in their public investment portfolio. Yes, we were all told that the "bail out" could offer significant returns for the American taxpayer, and there was a good deal of hope flying around the country that the economy would get back to the good old days sooner rather than later.

CIT Group's (CIT) failure and subsequent filing for protection under US Chapter 11 bankruptcy laws prove only that the economy, and the banking industry specifically, is far from stable. Their failure to pay dividends to the US government in the third quarter makes them the largest institution that accepted TARP (Troubled Asset Relief Program) funds to do so. And CIT was only one of eight banks behind on dividend payments.

What really is the American taxpayer getting for their investment? That's what the bail out in essence was sold as. According to the Huffington Post, three major issues have been left unresolved. Top executives at banks have not had their salaries cut, even after the government takeover, but have rather been given long term stock options and had their base salaries raised, so that they will not seek work elsewhere. The "too big to fail" financial institutions that are rather "too big to exist" need to be broken up to ensure that there is never again a need for another AIG-style bailout, but there has been no mention of trust busting. Also, when is the government getting out of the banking industry? Where's the exit strategy? The strategy of the federal government towards US banking institutions is beginning to look more and more like the war in Afghanistan!

So, what about the auto companies? Daimler Chrysler and GM both came under TARP. It is now looking as if:

Taxpayers are unlikely to recover their full investment in General Motors or Chrysler, U.S. government investigators said Monday in the latest review to cast doubts that the government will recoup the $80 billion it poured into the two automakers.

GM used part of its bailout to

buy Delphi

, an auto parts maker. With 61% of the company now owned by the American taxpayer, it is unlikely to be nimble enough to show a profit any time soon. The federal government has become the majority shareholder in GM, and purchases of $100 million or more must now be decided by the Feds. That is not any way to run a profitable business.

Now there is further news that

TARP is going on steroids

, as the White House opposes a proposal that would limit TARP funds to $1 trillion. All this while some of the best and brightest minds that oversaw the collapse of the US financial system are now in positions of economic leadership in the Obama administration. Yes, the government needs an exit strategy, and fast. But with these insiders doling out money to their former associates, there is no sign of TARP ending.

On a more positive note, E*Trade (ETFC) withdrew its request for TARP funds and Bank of America (BAC) wants to pay back the TARP funds it borrowed to allow it to take over Merrill Lynch, thus allowing it to pay its workers as it deems fit. Seems BofA may be one of the few big banking institutions that may get through this crisis.

Comments

[a fat panda:]

What is amazing is that beyond the TARP there is a series of programs designed to support the banks and promote liquidity in the credit markets. TARP is just the most visible. If you can't make money between the welfare and the dodgy accounting rules, you really need to re-think your career. If you aren't making payments on TARP loans, it is time to concede that banking isn't your calling.

The banks that are behind need to be closed. They aren't coming back, and all of the welfare that we are giving them just deludes the people who work there. If you can't make money in banking in this environment, you need to go back to being a bell-hop, a car pilot, a stripper, to whatever you were before you got the bright idea of becoming a banker.

Nov 05 04:19 PM

[wcinvest:]

BAC has been pretty much unfairly portrayed by the media and many of the bloggers. While it wasn't a good deal for long term shareholders, BAC stabilized Countrywide and Merill. And instead of being given credit for helping clean up the crisis, they have been bashed by too many in the media and government. BAC exited the subprime housing market in 2001 so they weren't that responsible for a good part of the crisis. Countrywide was obviously responsible but BAC has helped clean up that mess.

Many months ago, I stated that the government will end up making money on most of the tarp investments in the large banks and even investment banks.

The real cash drains in which the government and taxpayers will lose billions are Fanny Mae, Freddie Mac and AIG. And the auto companies. The taxpayers and bondholders got bent over by the auto company unions. AIG should never have been saved. 80% of the attention focused on BAC should be on these other entities!

I can see why the Bush/Obama administrations saved the Fanny and Freddie because of the "implicit guarantee" of their debt but bondholders in these institutions should have shared some of the pain since an "implicit guarantee" isn't a full guarantee.

The government should allow BAC to at least pay back half of the tarp money with no strings attached since BAC management by Ken Lewis so far has proven to be correct and the government stress tests and Roubini has proven to be wrong. Unemployment has reached the dire stress test scenario of around 10% but BAC is still expected to make a profit in 2009. And this is after the government extorted $400+ million to get out of a tentative agreement that was never signed. Given the government's -- the US Congress -- behavior toward BAC, I don't blame BAC management for realizing that they shouldn't sign the Merrill guarantee since the government can't be trusted.

Nov 05 04:35 PM

[THofler:]

According to the Huffington Post???

Wasn't Ariana & her ex-hubby scions of the conservative movement before she realized that there was more butter on the flip-side of the bread?

I do agree with most of the article. Isn't it ironic that the big bankers are getting beat up the most when all of those guys are producing big returns for TARP (well Citi could be a trouble spot). And while AIG IS getting plenty of deserved flak, there is little said about the auto companies their hideous labor unions that will blow a giant hole in TARP.

Why is nobody complaining about the UAW's decision to keep damaging Ford until they end up owning 50% of a worthless company.

Nov 05 06:45 PM

[JohnDough454:]

What nonsense you RWers peddle. The cost of labor in an auto is only about 10%. The Big (sic) 3 made shitty design decisions and shitty decisions to offer overly generous long term benefits and then didn't accrue for them.

And funny how the top deck at GM or Ford makes many, many multiples of the salary of the top deck at Toyota.

Couple that with socialized health care in Japan and they've got a superior product at a lower cost. C'est la vie.

It's not the US gov'ts fault the Big 3 suck. Maybe we should have just let them go, but the PBGC liability and the cost of unemployment are also real. Can't just point at one side of the ledger.

Nov 06 01:46 AM

[tom eieio:]

What ever happened to the idea of "Free Market" these companys that are taking bailout money should be allowed to fail, the market is extremely good at self correcting and with a little "less" goverment interference unemployment would also be self corrected. Instead too many employers are standing by waiting for what the next tax or demonazation of their buisness will be and afraid to hire. Cudos to E-trade for not taking TARP money and yes I am a shareholder. If your holding stock from any TARP assisted company proceed with CAUTION

Nov 06 08:01 AM

[a. palmer jr.:]

I'm not sure that the average citizen gets anything out of this even if all the dividends and payments were paid back. The money doesn't go into my bank account and from what I see it wouldn't lower my taxes a bit. This bunch we have in office now would just find another crisis to throw money at even if it weren't necessary. The best thing for the taxpayer would be for these companies to go privately owned again. Ditto for health care...they'll come up with compromises in order to pass a bill, any bill, so that they can control the health care industry.

Nov 06 11:36 PM

[Wealthy Moron:]

The whole concept of these bailouts goes against the principles of capitalism. It encourages risk and does nothing to correct the underlying problems. If you are interested in how this happens see my blog at yovia.com/blogs/attea2.../

Nov 07 04:00 PM