Saturday, December 03, 2011

TARP Update

I've previously reported that the TARP bailout cost less than predicted, because most of the "big banks" paid back their loans (with interest), and that the majority of expenses came from "the program's unwarranted expansion to include bailouts to GM and Chrysler, . . . the Making Home Affordable program, [and] AIG." Now, the Occupy Wall Street movement's vilifying big banks, cheered on by the Obama Administration. "Too big to fail" is back in the news--and disliked. So, it's time for a fact check.

According to the October 27th report of the Special Inspector General for the Troubled Asset Relief Program (SIGTARP), most of the big banks paid back their TARP loans (at 7):
A common misperception is that most of the 707 TARP banks have paid back TARP, when really only the largest banks have exited TARP. Smaller and medium size banks are not exiting TARP with the same speed as the larger banks, with approximately 400 still in TARP. Of these, nearly half are not paying their TARP dividend and in some cases, the banks are operating under an order by their regulator. Compared to larger banks, community banks may face an uphill battle to exit TARP. Community banks do not have the same access to capital as the larger banks. They are more exposed to distressed commercial real estate related assets and non-performing loans.
So OWS should be protesting local community banks. Instead, they're considering "transferring their checking and savings accounts from rapacious giants like Bank of America to community-based lending institutions, credit unions and other financial organizations more responsive to the needs of their customers." BTW, Bank of America repaid its TARP loan. So, as usual, OWS gets it exactly backwards.

Maybe OWS should relocate to Detroit--GM and Chrysler got huge bailouts, to benefit the autoworker unions, with little hope of eventual public profit. And don't forget Government Sponsored Entity mortgage lenders Fannie and Freddie, now-government operated but excluded from Obama's budget. Though largely responsible for the housing crisis, they got $ 183 billion, and can't pay it back (except for some dividend income).

Starting on page 43, the SIGTARP reports in detail on disbursements and receipts. A Powerline reader provides a useful summary:
After all, where did the loan proceeds GO? ANSWER: to developers, brokers, construction unions, contractors, landowners, lawyers, appraisers, servicers, local governments and boosters, real estate agents. . . AND homeowners. And house flippers, getting windfall gains.

source: Powerline

That’s where the wealth transfers from the bubble overwhelmingly ended up. The fees "Wall Street bankers" made (2% - 3%) and the net interest spread and returns expected by investors--but subject to losses--pale in comparison to the application of proceeds to the other beneficiaries. It is impossible for it to be otherwise. You might call them the 99%. Sure, the banks got fees but the 99% got the aggregate net principal from the loans. In the end there was, indeed, a wealth transfer, ultimately from taxpayers (and to a lesser extent from investor losses) paying for FNMA/FHLMC and other government agencies. But the wealth transfer was primarily TO the 99%, not to the "Wall Street banks".
Conclusion: OWS and Obama re-started class warfare. It's a Kabuki dance--but fiction.


Warren said...

It's hard to get into discussions about TARP without liberals confusing it with the Stimulus. Or the other way around -- talk about the Stimulus and they bring up aspects of TARP.

Much of TARP was justified versus little in the Stimulus.

One worked, the other didn't. And it wouldn't have worked even if it had been twice the size, notwithstanding the opinion of a Nobel Prize winning former Enron adviser.

Assistant Village Idiot said...

Warren, the confusion occurs with some conservatives as well. Sigh. I have a rather discouraged opinion why TARP gets mentioned first: "Bailout" is fun to say. OWS, and liberals in general, are very good at clever sayings and putdowns. They don't put anywhere near as much energy into the accuracy as they do the cleverness. And wit works, politically.

OBloodyHell said...

>> So, as usual, OWS gets it exactly backwards.

How do you think they managed to get their heads so far up their asses? To get something that much into someplace it doesn't naturally go -- that takes MAD SKILZ, y'know?