Saturday, October 2, 2010

TARP: A success not being acknowledged.

Discussions of TARP are often a find example of ideology trumping facts, but not in these citations.

WSJ Blog’s Deal Journal, October 1, 2010, posting entitled: “Tracking Which Banks Have Paid Back TARP” by Stephen Grocer and the accompanying data should be a must read for all the pundits who want to talk about TARP. However, often pundits don’t feel obligated to know anything about the topic they are discussing. The lack of other honest reports is so bad that below you’ll find essentially the entire posting about TARP. Facts are so refreshing.

“Two years after its creation, the program cost far less than expected and largely achieved its goal of propping up the financial sector.
While more than 600 banks are still sitting on about $65 billion in government bailout funds, most of the nation’s largest banks have repaid the Treasury.
Here, courtesy of our friends at SNL Financial, is a breakdown of banks that have repaid the funds they received through Troubled Asset Relief Program funds, as well as the amount of the warrants they redeemed and dividends they paid.”

There’s a temptation to also reproduce a short, Heard on the Street, September 30, 2010 article entitled: “Overheard: Long Way to Go” which also discusses TARP. It deserves to be read, if for no other reason than that it is factual. It’s also a nice antidote for another article on AIG in the same paper where the reporter has been thoroughly spun by the Treasury and AIG. But, let it suffice to just quote the first and last sentences of the Heard on the Street article: “Beware the mission-accomplished moment. Thursday's plan to restructure the government's huge exposure to American International Group provides for quick repayment of money owed to the Federal Reserve Bank of New York….The AIG fiasco will be over only if, and when, cash is back in Treasury's pocket.”

If the quote sounds familiar to those who follow this blog, it may be because in the posting entitled: “Stimulus more or less? A failure not being acknowledged: PART 3,” The Hedged Economist gave a similar warning about the need to track the money flows. (While PART 3 was about stimulus, it is equally relevant to TARP). The posting stated: “It is especially relevant because of how it indirectly highlights the need to follow the money flows. Politicians will call the AIG loans a success or failure based on ideology, and given the lack of transparancy in government accounting, the ideologues will get away with it by including or excluding flows based on the argument they want to make.”

For a different perspective and a decent overview see the Saturday Journal article entitled: “Bailout Ends, Not Anger” by Deborah Solomon and Naftali Bendavid. It is almost as if the WALL STREET JOURNAL suddenly woke up to the damage being done by the journalist short hand use of “bailout” to describe a complex group of financial policies. One can hope.

1 comment:

  1. Doc commented: "Yeah, well Neil Barovsky, the TARP IG, is now saying TARP funds were not nearly as good a deal as Obama claims (WSJ over weekend), employment did shrink over the past year, and taxes did go up on a prospective basis.

    The people are much smarter than the media believes."

    The hedged economist's comment: Well said! My claim of success is far different from Obama's nonsense. One has to follow the money and check the accounting on any pro forma. Obama and Governments don't use Generally Accepted Accounting Practices (GAAP). It is essential to follow the actual money flows. TARP hasn't wound down, but politicians want to put it behind them; so they are creating pro forma wined downs and claiming results.

    There was a very critical piece on Obama's reaction to TARP watchdogs report in BARONS this weekend. I didn't cite the link because it went beyond the accounting to address the disingenuousness of Obama's transparency rhetoric. It did point out how the administration is stretching the truth most severely in connecting with AIG. Since I'd already cited one article on this little fiction, I didn't think I needed to cover it again. The auto industry will probably be another example, but that and Citi are in the furture. Like deep throat said "follow the money."

    Although some of the loans will be losers (the government has already forgone interest on some, technically a default), overall, it was probably money well spent if there's a net lose and may just turn out to be a big loan. In the grand scheme of things, the Fed just printed the money that was lent. Figuring the opportunity cost of the loans is real tricky.