Three Cheers for TARP

[ziggy29]

Sounds like we need to cap the pay of Fannie and Freddie execs, too...

 

[RonBoyd]

Sounds like we need to cap the pay of Fannie and Freddie execs, too...

Hmmm. I don't have the time (or the resources -- still "on the road") to research further but this may be a place to start:

Fannie Mae Salaries | Glassdoor.com

 

[harley]

Sounds like we need to cap [-]the pay of[/-] Fannie and Freddie execs, too...

Fixed.

 

[Gone4Good]

Opps... mabye they spoke to soon.....

Fannie and Freddie may need another $215 billion - Yahoo! News


Fannie and Freddie may need another $215 billion

Fannie and Freddie aren't part of TARP. Their debt was basically sold as "government debt" and was always assumed by buyers to be guaranteed, even though it never explicitly was. Running these things that way was a very bad idea, but it has nothing whatsoever to do with TARP.

 

[Gone4Good]

I saw this article today and assumed you'd post it here

So i assume that by "in no time" you mean never.

You didn't link the entire article, so I can't critique it, but claiming the Fed lowering rates is somehow a cost that should be added to TARP is a really strange argument, and an even stranger accounting. The term 'non sequitur' comes to mind.

 

[Texas Proud]

Fannie and Freddie aren't part of TARP. Their debt was basically sold as "government debt" and was always assumed by buyers to be guaranteed, even though it never explicitly was. Running these things that way was a very bad idea, but it has nothing whatsoever to do with TARP.

Sooooo, creative accounting IMO... so maybe TARP might be close to breaking even, but the country is still a few hundred billion in the hole due to the financial crisis....


Kind of like "I won $200 on the lottery" without netting all the 100s lost prior to that win...

 

[Gone4Good]

Sooooo, creative accounting IMO...

Not really. The thread is about TARP not "everything the government does that we don't like, and TARP."

Creative accounting would be to add costs not associated with the specific program.

 

[samclem]

Creative accounting would be to add costs not associated with the specific program.

Or to not include costs that should be included.

From the 16 Sep 2010 Report of the Congressional Oversight Panel (COP), the views of J. Mark McWatters and Professor Kenneth R. Troske (emphasis added):

- Repayment by TARP recipients of advances received under the program is a misleading measure of the effectiveness of the TARP and therefore should not serve as the standard by which the TARP is judged.

- According to the Congressional Budget Office, the bailout of Fannie Mae and Freddie Mac is projected to cost more than five times the projected cost of the TARP, including the Capital Purchase Program employed by Treasury to bail out over 700 financial institutions. TARP recipients and other holders of GSE-guaranteed MBS who benefitted from the bailout of the two GSEs are not required, however, to share any of the costs
incurred in the bailout.

- The bailout of Fannie Mae and Freddie Mac permitted TARP recipients to monetize their GSE-guaranteed MBS at prices above what they would have received without the GSE guarantee and use the proceeds to repay their obligations outstanding under the TARP, thereby arguably shifting a greater portion of the cost of the TARP from the TARP recipients themselves to the taxpayers. Costs such as this should be included when evaluating the TARP.

- The TARP created significant moral hazard risks and all but enshrined the concept that some financial institutions and other business enterprises are too big or too interconnected to fail.

Similar views are expressed in the main body of the report. (See the section on "Costs of the TARP" beginning on pg 95).

TARP is inextricably linked with the costs that we've paid and will pay for the bailout of the GSEs, and to claim that the TARP costs are independent is clearly inaccurate. From the report (starting p 127), emphasis added:

In our view, Treasury is struggling to convince the American public of the TARP‟s success by advocating the acceptance of a metric – whether or not the TARP money has been repaid – that is simply not a credible measure of success. Professor Kenneth Rogoff addressed this issue in his written submission to the Panel where he states:
"A proper cost benefit analysis thus needs to price the risk the taxpayer took on during the financial crisis. Ex post accounting (how much did the government actually earn or lose after the fact) can yield an extremely misguided measure of the true cost of the bailout, especially as a guide to future policy responses.398"
2. The Bailout of the GSEs and its Consequences to TARP Recipients
One of the important ways this metric can be misleading is if other government programs that are not part of the TARP either directly or indirectly enhanced TARP recipients‟ ability to repay the government. One program that has potentially played a key role, but has received
relatively less attention, is Treasury‟s bailout of Fannie Mae and Freddie Mac.399 . . . . As it was, Treasury stepped in and provided unlimited support for all outstanding MBS guaranteed by Fannie Mae and Freddie Mac.
In addition, the Federal Reserve has recently purchased $1.25 trillion of GSE-guaranteed MBS in the secondary market from TARP recipients, other financial institutions and other investors and issuers.401 . . . .
The bailout of the two GSEs by Treasury thus had the potential to shift losses suffered under the TARP to losses suffered by another Treasury program that has not been subject to the same oversight or public scrutiny.404 As this example illustrates, any evaluation of the success of the TARP has to take into account the interaction among all government programs designed to prop up the financial system and how costs may have been shifted among these programs.

TARP isn't close to being paid off. Much of the cost and risk for TARP was shifted to other portions of the bailout scheme (see above). And we won't know the true bill for the enhancement of moral hazard spawned by TARP (the program's most important legacy) until the next big financial derailment.

So, three Bronx cheers for TARP.

Folks who want more govt involvement in the financial system should look for a prettier poster child. Maybe FDIC . . .

 

[Gone4Good]

TARP is inextricably linked with the costs that we've paid and will pay for the bailout of the GSEs, and to claim that the TARP costs are independent is clearly inaccurate.

This represents muddled thinking. The GSE (Government Sponsored Entities) benefited from an implicit guarantee that pre-dates TARP. How can TARP be responsible for obligations that were incurred before its creation? The answer, it can't.

And it doesn't matter at all that TARP recipients benefited from GSE support because the U.S. government was already committed to supporting the GSE regardless of whether TARP existed or not. It's also true that TARP recipients benefited, and continue to benefit, from the U.S. government's decision to honor principal and interest on Treasury obligations. Should these costs also be included in TARP? The idea is preposterous.

 

[samclem]

This is clearly not true. The GSE (Government Sponsored Entities) benefited from an implicit guarantee that pre-dates TARP. How can TARP be responsible for obligations that were incurred before its creation? The answer, it can't.

The TARP "repayments" occurred largely because of funds the government spent (and continues to spend) in other portions of the bailout. The risks and costs for TARP have been shifted. If you disagree, write a letter to Congress, it's their experts and their oversight report with which you have a quarrel.

 

[Gone4Good]

The TARP "repayments" occurred largely because of funds the government spent (and continues to spend) in other portions of the bailout. The risks and costs for TARP have been shifted. If you disagree, write a letter to Congress, it's their experts and their oversight report with which you have a quarrel.

Any report that claims honoring a pre-existing guarantee is a cost to a program that came into being well after that guarantee was established has clear logic problems at its core.

By this "cost-shifting" 'logic', any action taken by the government that impacted TARP recipients should be treated as a "cost" of TARP. That list is endless . . . tax cuts of any kind, unemployment insurance extensions, Social Security payments, treasury bond payments, government salary payments, all flow, in some measure, to TARP banks. Through this "six degrees of separation" accounting we could almost certainly conclude that the entire world GDP is, really, a cost of TARP (U.S. Aid to Africa, supports African agricultural exports, which raise the value of the S. African Rand, which increases the value of South African development loans made by Citigroup. So it "logically" follows that U.S. Aid to Africa is really a cost of TARP as well). Obvious nonsense.

 

[M Paquette]

This represents muddled thinking. The GSE (Government Sponsored Entities) benefited from an implicit guarantee that pre-dates TARP. How can TARP be responsible for obligations that were incurred before its creation? The answer, it can't.

Hey, no fair! This is a political issue, so we get to make up any rules we like along the way, and redefine words to mean whatever is handy.

In general, what passes for 'accounting' among politicians would land a CFO in prison. Yes, I'm pretty much fed up with all the crazy bullpuckey appearing in various media recently, and very much doubt that I'll see any improvement in what passes for budgetary practices after the next election.

New Improved Federal Budget! Now with Muddled Thinking!

 

[Texas Proud]

Well, it seems that even TARP is not going to end up making money... (my bold)...


"Treasury's authority to spend more from the $700 billion fund expired on Oct. 3. The law requires officials to recoup as much as possible of the $185 billion still in the hands of shaky private companies. After all collections are made, the government expects to be out about $51 billion, mostly from housing programs."



SPIN METER: Despite claims, bailouts not over yet - Yahoo! News

 

[Gone4Good]

"Treasury's authority to spend more from the $700 billion fund expired on Oct. 3. The law requires officials to recoup as much as possible of the $185 billion still in the hands of shaky private companies. After all collections are made, the government expects to be out about $51 billion, mostly from housing programs."

Yes, that's the same $50B estimate that I used to start this thread.

It's still an incredibly small price to pay to keep the entire financial system from melting down. I wonder how much tax revenue would have been lost (and how much more Fannie's and Freddy's pre-existing guarantees would have cost ) if TARP hadn't passed. As it is, tax revenues are down $400B as a result of the recession. It's hard to argue (although I'm sure some will) that Government revenues would have been higher, or the GSE's guarantee costs lower, if TARP never existed.

 

[FinanceDude]

Well, it seems that even TARP is not going to end up making money... (my bold)...


"Treasury's authority to spend more from the $700 billion fund expired on Oct. 3. The law requires officials to recoup as much as possible of the $185 billion still in the hands of shaky private companies. After all collections are made, the government expects to be out about $51 billion, mostly from housing programs."



SPIN METER: Despite claims, bailouts not over yet - Yahoo! News

Heck, it's only 50 billion that's not a lot of money to the Administration..........

 

[HFWR]

Heck, it's only 50 billion that's not a lot of money to the Administration..........

The one responsible for TARP?

 

[samclem]

I wonder how much tax revenue would have been lost (and how much more Fannie's and Freddy's pre-existing guarantees would have cost ) if TARP hadn't passed. As it is, tax revenues are down $400B as a result of the recession. It's hard to argue (although I'm sure some will) that Government revenues would have been higher, or the GSE's guarantee costs lower, if TARP never existed.

That's just the beginning. Who knows how bad things would have gotten? Polar caps melting, tectonic plate slippage, a reversion to the gold standard . . . the sky is the limit. When we hear folks wax eloquent about how dark things would have been but for TARP and when the dread-inducing music begins in the background, all right thinking people are overwhelmed with gratitude for our wise and benevolent leaders.

 

[HFWR]

That's just the beginning. Who knows how bad things would have gotten? Polar caps melting, tectonic plate slippage, a reversion to the gold standard . . . the sky is the limit. When we hear folks wax eloquent about how dark things [-]would have been but for[/-] are because of TARP and when the dread-inducing music begins in the background, all right thinking people are overwhelmed with gratitude for our wise and benevolent leaders.

Since no one really knows what would have happened, this statement is just as true...

 

[Nords]

That's just the beginning. Who knows how bad things would have gotten? Polar caps melting, tectonic plate slippage, a reversion to the gold standard . . . the sky is the limit.

It certainly helps explain why the Saints won the Super Bowl...

 

[Gone4Good]

That's just the beginning. Who knows how bad things would have gotten? Polar caps melting, tectonic plate slippage, a reversion to the gold standard . . . the sky is the limit. When we hear folks wax eloquent about how dark things would have been but for TARP and when the dread-inducing music begins in the background, all right thinking people are overwhelmed with gratitude for our wise and benevolent leaders.

Naturally no one knows the full extent of what would have happened, but that is a thin reed to hide behind. We can certainly evaluate the reasonableness of hypothetical scenarios. On the one hand, a reasonable case can be made for widespread bank failures, higher unemployment, and lower government revenues absent TARP. Can a similarly reasonable case be made for lower unemployment and higher government revenues absent TARP?

 

[samclem]

Naturally no one knows the full extent of what would have happened, but that is a thin reed to hide behind. We can certainly evaluate the likelihood of alternate scenarios. On the one hand, a reasonable case can be made for widespread bank failures, higher unemployment, and lower government revenues absent TARP. Can a similarly reasonable case be made for lower unemployment and higher government revenues absent TARP?

This is the metric? By this standard we could have "success" by confiscating $1 trillion in private property and using it to pay 20 million people to dig and fill ditches and make them pay taxes. And then simply burn other scores of billion$. Sure, we'd establish a terrible precedent of government intrusion (like TARP), we'd make people wonder if the rule of law applies at all times in the US (another casualty of TARP), but we'd have higher employment and higher govt revenues.

Do we want our new gold standard to be "the ends justify the means"?

Especially when the "ends" aren't so good, unless we awfulize about what might have been?

 

[FreqFlyer]

This is the metric? By this standard we could have "success" by confiscating $1 trillion in private property and using it to pay 20 million people to dig and fill ditches and make them pay taxes.

Are you talking about the Stimulus billl? I'm under the impression that 40% of this $1T was for tax cuts (not spending). Surely this portion isn't a confiscation of private property.

 

[Gone4Good]

This is the metric?

So without being able to offer up a reasonable alternative scenario you basically agree, then, that government revenue would be lower and unemployment higher had TARP not been implemented. And considering that TARPs new projected cost of $50B is just 2% of Federal Revenue, it wouldn't take a big swing in either number to conclude that TARP more than paid for itself.

Especially when the "ends" aren't so good, unless we awfulize about what might have been?

As to how bad things might have been, we know for a fact that we were losing 779,000 jobs per month at the bottom of the recession (that is more than 6% of the workforce on an annualized basis). We know for a fact that those job losses peaked three months after TARP. I don't see how we could pretend that the unprecedented monetary and fiscal intervention applied to arrest that decline didn't really help (just a coincidence?) and that a simple continuation of the trend we were on is an "awfulization" of the "do nothing" alternative instead of the reasonable base case scenario that it is. And if there is a thoughtful argument to be made that allowing the companies at the core of our financial system to fail wouldn't have accelerated that trend to the downside, I'd like to hear it.

 

[ziggy29]

As to how bad things might have been, we know for a fact that we were losing 779,000 jobs per month at the bottom of the recession (that is more than 6% of the workforce on an annualized basis). We know for a fact that those job losses peaked three months after TARP. I don't see how we could pretend that the unprecedented monetary and fiscal intervention applied to arrest that decline didn't really help (just a coincidence?) and that a simple continuation of the trend we were on is an "awfulization" of the "do nothing" alternative instead of the reasonable base case scenario that it is.

You could make a similar argument that it was the Reagan tax cuts that pulled us out of recession, but it would (a) be oversimplistic to primarily attribute the recovery to that single event and (b) it would be confusing correlation with causation.

Just a coincidence?

 

[FinanceDude]

So without being able to offer up a reasonable alternative scenario you basically agree, then, that government revenue would be lower and unemployment higher had TARP not been implemented. And considering that TARPs new projected cost of $50B is just 2% of Federal Revenue, it wouldn't take a big swing in either number to conclude that TARP more than paid for itself.

TARP was agreed upon by both parties, and its water over the bridge. In the end, it was a necessary evil. However, when folks like GM tout they "paid back every dollar" and in reality they just used a non-TARP govt loan to pay off a TARP loan, it makes them look stupid, and causes the taxpayer to wonder which idiot is in charge...........

And if there is a thoughtful argument to be made that allowing the companies at the core of our financial system to fail wouldn't have accelerated that trend to the downside, I'd like to hear it.

I'll give you TARP as "ok", if you grant me the "Stimulus Plan" was sheer lunacy...........