Bank bailout turns a profit, no seriously!

[tsetsefly]

EW YORK (CNNMoney) -- Don't look now, but the bank bailout is starting to turn a profit.The Treasury Department announced Wednesday that the money it gave to banks during the financial crisis has been paid back, and then some.



The bank bailout -- part of the Troubled Asset Relief Program -- is now $6 billion in the black, a profit that might ultimately rise to $20 billion, according to the Treasury.
And that's nice. But if you look at the whole program, there are still some trouble spots, and not everyone is happy.
"We still have more work to do repairing the damage caused by the crisis and strengthening the recovery, but today is an important milestone in our efforts to recover taxpayer dollars as we continue winding down TARP," Treasury Secretary Tim Geithner said in a statement.
For a long time, TARP was the albatross around Treasury's neck. It authorized the department to spend up to $700 billion to stabilize financial markets through the purchase of "troubled assets."
And that's just what Treasury did, spending a total of $432 billion dollars to help banks, the domestic auto industry, AIG (AIG, Fortune 500), and fund grants aimed at avoiding foreclosures.

http://money.cnn.com/2011/03/30/news...dex.htm?hpt=T2

This is akin to saying you paid of your mortgage because you refinanced your house loan...

[ASH]

Re: Bank bailout turns a profit, no seriously!

This is akin to saying you paid of your mortgage because you refinanced your house loan...

We're massively in the red in terms of lost tax revenue and supplemental stimulus spending, but TARP as an isolated (and unpopular) program could legitimately be in the black, or near to it. Are you saying Treasury has been paid back mainly using other funds loaned by Treasury? I thought that where most of the banks were concerned, the repayments are legitimate, whereas the "repayments" by automakers have components of fresh lending under other programs. (I also seem to recall that the 'repayments' by AIG depend on rather dubious assumptions about the value of stock, but have lost track of those details.)

[tsetsefly]

Re: Bank bailout turns a profit, no seriously!

We're massively in the red in terms of lost tax revenue and supplemental stimulus spending, but TARP as an isolated (and unpopular) program could legitimately be in the black, or near to it.

It seems to me its like GM when they said they had paid off their government debt except they forgot to tell everyone they paid it with another government loan. Where are the funds to pay TARP coming from?...

[ASH]

Re: Bank bailout turns a profit, no seriously!

the "repayments" by automakers have components of fresh lending under other programs.

I found this reference, to refresh my memory:

“So it’s good news in that they’re reducing their debt,” Mr. Barofsky said of G.M. But he went on to note that G.M. was using other taxpayer money to make the loan repayment, according to the transcript of his testimony.

[LargoWinch]

Re: Bank bailout turns a profit, no seriously!

Yep TARP is the black...using "mark to model".

[ASH]

Re: Bank bailout turns a profit, no seriously!

It seems to me its like GM when they said they had paid off their government debt except they forgot to tell everyone they paid it with another government loan. Where are the funds to pay TARP coming from?...

As I understand it, some of the TARP funds were 'forced' upon the banks to shore up their capitalization during the panic, but subsequently were not needed because the mark-to-market rules were relaxed, and the Fed monetized a lot of MBS. That was why some of the banks were clamoring to pay back their TARP funds, very early on. Also, banks have been relatively profitable recently (thanks to, you know, massive money-printing by the Fed), and Treasury was therefore in a position to profit from the recovery in share price, because of stock warrants connected to TARP.

[ASH]

Re: Bank bailout turns a profit, no seriously!

Treasury was therefore in a position to profit from the recovery in share price, because of stock warrants connected to TARP.

I found this reference regarding the preferred stock / warrant angle:

For every investment that Treasury made in a publicly traded financial services company through TARP's Capital Purchase Program and the Targeted Investment Program, it got preferred stock, plus warrants entitling the holder to buy common stock at a set price, similar to stock options.

When the TARP recipients exit the program by redeeming their preferred stock, they also can repurchase their warrants. If they decline, Treasury typically sells them through auctions.

Roughly speaking, Treasury's profits amount to 'buying' bank shares at depressed prices in late 2008, waiting for the Fed to re-inflate the stock market, and then 'selling' those shares.

[tsetsefly]

Re: Bank bailout turns a profit, no seriously!

I found this reference regarding the preferred stock / warrant angle:

For every investment that Treasury made in a publicly traded financial services company through TARP's Capital Purchase Program and the Targeted Investment Program, it got preferred stock, plus warrants entitling the holder to buy common stock at a set price, similar to stock options.

When the TARP recipients exit the program by redeeming their preferred stock, they also can repurchase their warrants. If they decline, Treasury typically sells them through auctions.

Roughly speaking, Treasury's profits amount to 'buying' bank shares at depressed prices in late 2008, waiting for the Fed to re-inflate the stock market, and then 'selling' those shares.

In reply to this and your post before this. I think you stated my point, in essence the "profits" and money came either directly from the fed or with help of the fed. It is not repayment of debt as we know it. The same article I posted also mentions why the bailout has only "helped"the banks on not mainstream, I thought it was funny it would even ask that question...

[ASH]

Re: Bank bailout turns a profit, no seriously!

In reply to this and your post before this. I think you stated my point, in essence the "profits" and money came either directly from the fed or with help of the fed. It is not repayment of debt as we know it. The same article I posted also mentions why the bailout has only "helped"the banks on not mainstream, I thought it was funny it would even ask that question...

My point is that help from the Fed isn't the same as money from the Treasury. From the practical standpoint of a tax-payer, the repayment by banks is meaningful, and not circular in the same way as the repayment by GM. From a more general moral standpoint, I agree that it isn't repayment of a debt "in spirit" -- it doesn't represent any meaningful work done by the TARP recipients.

[Thailandnotes]

Re: Bank bailout turns a profit, no seriously!

http://www.nytimes.com/2011/03/30/op...fsky.html?_r=1

"TWO and a half years ago, Congress passed the legislation that bailed out the country’s banks. The government has declared its mission accomplished, calling the program remarkably effective “by any objective measure.” On my last day as the special inspector general of the bailout program, I regret to say that I strongly disagree. The bank bailout, more formally called the Troubled Asset Relief Program, failed to meet some of its most important goals.".....

"It wasn’t meant to be that. Indeed, Treasury’s mismanagement of TARP and its disregard for TARP’s Main Street goals — whether born of incompetence, timidity in the face of a crisis or a mindset too closely aligned with the banks it was supposed to rein in — may have so damaged the credibility of the government as a whole that future policy makers may be politically unable to take the necessary steps to save the system the next time a crisis arises. This avoidable political reality might just be TARP’s most lasting, and unfortunate, legacy. "

[mmr]

Re: Bank bailout turns a profit, no seriously!

TARP wasn't the real bailout, all it did was allow time for banks to rebuild their capital levels through share sales and "earnings". ZIRP was the real bailout.

[dcarrigg]

Re: Bank bailout turns a profit, no seriously!

Yep TARP is the black...using "mark to model".

What's wrong with mark to model? It worked great for Enron.