Socialism for the Rich or Money Making scheme? The intricacies of TARP and Government Bailouts

[Sleepy Hollow]

Troubled Asset Relief Program (TARP) - a massive government bailout to all American banks, from gigantic multinationals to regional banks to small stateside local banks. The incident that led to the infamous Occupy Wallstreet protest

What many people don't know is that it was a political ploy to reassure the general public and prevent an even worse recession. It was to give the image that the government was here to fix everything by publicly injecting banks with cash, the general public would theoretically think it'll be safe to borrow money again. Which worked. It worked so well that the long recession and possible repeat of the Great Depression was stalled and by 2012 things were on the upswing fairly quickly. Plus the government made a hefty profit of 30.5 billion from the same banks it bailed out. That's right, the American government used the failure of a few of its biggest banks and mortgage finance companies to force all banks (including the responsible banks who didn't engage in shady subprime mortgage lending) to accept loans and made them pay it back. Rather than allowing the free market to work and seeing these giant companies fall while the smaller responsible banks swept up the massive available market share, the government decided to intervene to save reckless companies led by reckless corprate culture. So much for the invisible hand of the free market . Billionaires and multi-nationals are artifically sustained by governments.

Of course the accounting on this is not so clear cut due to the fact that because the total bailout was shared amongst the Treasury and Federal Reserve that any interest payments, stock profits and dividends made from TARP should not be counted towards the original loan, which on the books looks like TARP was a 3 billion dollar loss for tax payers.

Tarp was not a bailout, and the government's profit was huge
By
Edward Yingling
May 16, 2017, 9:30 a.m. EDT

• Facebook
• Twitter
• LinkedIn
• Email
• Print
• Show more sharing options

Last week, the Treasury Department announced that the final major investment in a bank from the Troubled Asset Relief Program had been repaid and that the government had made a total profitof $30.7 billion on the program. Of course, this story did not appear in any of the major media, and 99% of the media and the public probably still believe the government lost hundreds of billions of dollars on “bailed out” banks.
This incredible twisting of the facts, as well as the resulting loss of confidence in banks, caused tremendous harm to our economy and especially to the thousands of banks that had nothing to do with creating the financial crisis. My purpose here is not to relitigate whether Tarp was the right approach, but rather to point out the massive and disastrous communication failure related to Tarp on the part of government leaders — including members of Congress — and, of course, the media.
After offering up an unworkable program to buy troubled loans (hence the name: the Troubled Asset Relief Program), the government, led by Treasury and the Federal Reserve, without warning called in the leaders of nine of our largest banks in October of 2008 and basically ordered them to take capital injections. Immediately thereafter, the regulators called bank CEOs across the country and “requested” that they too take such injections. The CEOs were told that the purpose was to create a firewall against panic and also that their banks would be better positioned to buy any banks that were in trouble.

Uniformly, these CEOs responded that their banks were very well capitalized, doing fine and did not need nor want money from the government. At the time, over 95% of banks in the country were indeed well capitalized. Of course a “request” from a bank’s regulator is not really just a request, and so many banks took the money, often believing it was their patriotic duty to do so.
Incredibly, there was no communication plan at the highest levels of government to explain this massive new program. Our leaders were at best naive about how this was going to play out. Predictably, within a few weeks, a firestorm erupted about billions of dollars being spent to “bail out” banks, with few strings attached. In response, officials at Treasury and the Fed created a new story line that the money was to increase lending, leading to congressional and media demands for banks to prove where exactly the increased lending was — an impossible task in the face of cratering loan demand. Quickly, bankers were vilified, new restrictions were unilaterally applied to Tarp banks and the avalanche of new regulations that ultimately peaked with the Dodd-Frank Act began.
The American Bankers Association tried — but was largely unsuccessful, I am afraid — to get the truth out against this tidal wave. We went on every TV program and talked to every reporter we could, wrote op-eds and white papers, and talked to members of Congress and the regulators. I wrote the strongest letter of my career to then-Treasury Secretary Henry Paulson, pointing out the damage that was being done by the failure to forcefully counter this false narrative.
We argued that banks were not the cause of the crisis; that banks did not ask for the Tarp investments and in fact were pressured to take them; that (although there were a few possible exceptions among the big banks) all the banks that took the money were, by the express requirements of Tarp, healthy banks — i.e., they did not need a bailout; and that banks wanted to lend but that loan demand was clearly down.
On November 8, 2008, at the height of the Tarp firestorm, I testified for the ABA before the House Financial Services Committee and made those points. Furthermore, while commentators routinely now say that no one could have predicted that there would be a profit for the government on the bank investments in Tarp, we did exactly that. Despite the dangers of doing so, we thought it was necessary to try to change the widely held and mistaken belief that this was a bailout. Our prediction, for which we laid out our analysis, was a $40 billion to $45 billion profit. That seems pretty close to the $30.7 billion actually reported. But actually it was even closer. We naturally used the program’s own metrics for when banks would pay back the investments, but many banks paid them back much faster, in the vain hope of getting away from the “bailout” stigma, resulting in much less interest being received by the government.
So we have been proven right. But that is of no help to the thousands of banks that suffered, and are still suffering, from the grossly unfair rollout and communication of Tarp.
Edward Yingling

 

[Sleepy Hollow]

The above was only TARP, the total profit of the 14 trillon dollar bail out was 350 billion dollars, in pure cash. The Washington Post using the findings of a research firm and public records of the Federal Reserve and TARP gathered up the totals of each bail out.

The only real bailout that American taypayers lost money on was the bailout for Automobiles such as GM Motors. However it helped saved jobs and kept certain cities and states from completely dying.

Bailout highly profitable for taxpayers, when you look at the right numbers



It’s always nice to start a year by using the right numbers, especially if they are upbeat ones. So let’s start 2015 with the good news that U.S. taxpayers are far more ahead on the financial bailout than almost anyone realizes.
Let me explain. In mid-December, when the Treasury unloaded its final shares of Ally Financial, its last major Troubled Asset Relief Program (TARP) holding, and declared the books more or less closed, it said that U.S. taxpayers had made $15.6 billion. That touched off a debate about what that $15.6 billion bailout profit meant.
But you know what? By my math, that $15.6 billion is only about 1/25 of the profit that taxpayers have realized on the bailout. That’s because TARP was only a minor part of the resources that the government committed to the bailout.
Conflating TARP with the total bailout is a classic example of how politicians and the media often obsess about politically sensitive numbers while far more meaningful real-world numbers are ignored. Congress had to approve the high-profile, controversial program, making it intensely political. But the real guts of the bailout — backstopping the world financial system, driving down interest rates, preventing mortgage-finance giants Fannie Mae and Freddie Mac from defaulting on their massive debts — were administrative actions that didn’t need congressional approval. Thank God.
TARP, which peaked at $411 billion despite having been authorized to spend $700 billion, was less than 3 percent of taxpayers’ bailout exposure, which totaled $14 trillion. (Details, from a 2011 piece I wrote for Fortune magazine, are in the box adjacent.)

The actual taxpayer profit on the bailout is about $350 billion, by my math. That’s right, $350 billion. All in cash, most of which has held down the federal budget deficit over the past six years. That’s serious money, even by today’s standards.
Where is my $350 billion number from? I’m glad you asked. I start with the $15.6 billion TARP number. Then I add the cash profit that taxpayers have made on the Fannie-Freddie bailout. That’s $37.9 billion, according to the most recent numbers from the Federal Housing Finance Agency — the difference between the $187.5 billion that taxpayers advanced to Fannie and Freddie when they were in extremis, and the $225.4 billion that the firms have paid the Treasury. That brings the total to $53.5 billion.
Now we come to the big and nonobvious number: the excess profit that the Federal Reserve has made from the bailout, and given to Treasury. The Fed has added trillions of dollars of securities to its balance sheet as part of its various programs to put cash into the world financial system and hold down interest rates to help the economy. The Fed did this by creating money out of thin air and using it to buy interest-bearing securities. That interest is pure profit to the Fed — and the Fed, by law, turns over its surplus profit to Treasury.
As you can see from the table accompanying this column, the Fed’s annual payments to Treasury began rising sharply in 2009, when the central bank began loading up its balance sheet in earnest.
Before the big balance-sheet expansion, the Fed had been turning over about $30 billion of profit a year to Treasury. But in the past six years, it has turned over a total of about $474 billion, according to Stone & McCarthy Research, a well-regarded Fed-watching firm based in Princeton, N.J.
The difference between that total and the $30 billion-a-year regular number is $294 billion. Throw that into the mix and you are up to $347.5 billion. Which is close enough to $350 billion for me — especially since the Fed, Fannie and Freddie are still sending profits to Treasury.
I’m leaving out some relatively minor bailout items — such as guarantee fees that Treasury and the Federal Deposit Insurance Corp. got for backstopping various investments, and the cost of providing special income-tax deals to companies such as General Motors that became majority-owned by the government as part of the bailout. Those items more or less net out against each other.

Please understand that I’m not saying the bailout was wonderful or perfect, or that I like the fact that prudent savers are still earning essentially nothing on their money, thanks to the Fed’s near-zero interest-rate policies. What I’m trying to do is to give you real numbers about how the U.S. taxpayers have done, as opposed to the numbers that you probably have seen or probably believe.
Also, for the record, in many cases shareholders of bailed-out firms — especially AIG, Fannie and Freddie — were essentially wiped out, as they should have been. Absent the federal bailout, those firms would have gone into bankruptcy, and their shareholders would have gotten nothing. That’s why I hope the lawsuits claiming injustices in the cases of Fannie, Freddie and AIG get thrown out, which would be the economically and socially just outcome.
On a risk-adjusted basis, even $350 billion isn’t that big a profit, given the huge downside the government had. But having U.S. taxpayers make money while saving the financial world from collapse is a lot better than having them lose money. And a $350 billion (and growing) profit is a lot better than a $15.6 billion profit. Happy New Year.
Bailout payday from Fed
Here are the profits that the Federal Reserve has sent to the Treasury for the past 10 years. The numbers started rising sharply in 2009, when the first round of quantitative easing took place. That’s why I attribute all of the 2009-2014 payments above $30 billion a year to the bailout.

2005​	$21.5 billion​
2006​	$29.1 billion​
2007​	$34.6 billion​
2008​	$31.7 billion​
2009​	$47.4 billion​
2010​	$79.3 billion​
2011​	$75.4 billion​
2012​	$88.4 billion​
2013​	$79.6 billion​
2014​	$104 billion*​

*estimated
Source: Stone & McCarthy Research, from public filings
Taxpayers’ money at risk

Fannie/Freddie​	$4.6 trillion​
Federal Reserve​	$3.8 trillion​
Treasury programs​	$3.5 trillion​
FDIC​	$1.7 trillion​
TARP​	$411 billion​
Total​	$14.011 trillion​

Estimate of Fannie/Freddie debt when companies were nationalized, less Fannie/Freddie securities held by Treasury and Federal Reserve.
Includes Treasury guarantees on $3.35 trillion of money-market mutual funds and $150 billion of mortgage-backed securities. Treasury says its commitment to cover money-fund losses was limited to $50 billion, but it’s inconceivable that it would have let money-market fund holders take losses, because that would have started the panic the guarantee program was created to stop.
Fed: Largest daily use of each of its new liquidity facilities, plus special loans to AIG, plus exposure to assets in Maiden Lane partnerships, plus QE 1&2
FDIC: Maximum exposure of $350 billion for its debt-guarantee program, $830 billion for providing deposit insurance on business bank accounts, and $500 billion for increasing retail deposit coverage to $250,000 from $100,000.
TARP: Public records

Government bail outs work because it shifts blame of faulty deregulation onto the free market rather than what caused it in the first place, lobbying of certain irresponsible large banks and politcians doing their bidding. Those banks and all the people involved deserved to have been wiped out and bankrupted for good while a new breed of responsible banks and financial leaders took the helm of the industry but they were saved and continue their cancerous ways (e.g. laying off thousands of workers to cut costs but still handing out bonuses in the millions to individual executives).