Treasury Secretary Tim Geithner has just issued an update on bailout loans to banks and financial institutions, which made profits. Image from Wikimedia Commons.

The recession is definitely over for banks that got bailout loans from the taxpayers, and the bailout is now paying dividends. The portion of the Troubled Asset Relief Program that lent funds to banks with bad assets has made a profit, as huge banks and Wall Street firms are very profitable again. Relief programs for the housing industry have not been so successful.

Loans from the TARP program were good investments

The installment loans from the taxpayers to huge banks and investment firms under the Troubled Asset Relief Program were certainly a cause of controversy. However, according to CNN, the Department of the Treasury has reported that loans to banks and other entities in the financial industry have resulted in a $6 billion profit, which may grow to a $20 billion profit by the time all loans are repaid. TARP had $700 billion, and $432 billion has been spent.

Mortgage modification program cut

The federal mortgage modification programs have not been as successful as the government hoped they would be. As a result, the Home Affordable Modification Program has wound up on the chopping block, according to MSNBC. House Republicans were able to pass a bill that would terminate HAMP, but it may be a symbolic gesture, as a narrowly Democrat-controlled Senate and the Democrat President may not be as amenable to cutting the program. The program has been deemed a failure, as it has a success rate of less than 50 percent in modifying mortgages. Other mortgage relief programs are being targeted for elimination, but eliminating such programs would likely also be symbolic. Senate Democrats and the President may not be willing to cut the lifeline to troubled homeowners regardless of whether the programs don’t keep many from having to get same day loans and move out of underwater homes.

Wall Street feeling better about itself

A recent survey, according to Reuters, revealed that CEOs at large corporations were feeling better about the overall economy and were more willing to hire and try to expand their companies. Of the 142 CEOs that responded to the survey by the Business Roundtable, a trade organization for Chief Executive Officers at major corporations, more than half said they were going to start hiring people in the next year. If hiring at large firms picks up, that provides a boost to the middle class.

Sources

CNN

MSNBC

Reuters

As TARP ends, a Treasury official defended the program as he faced critics who said it helped Wall Street, not Main Street. Image: Alan Cordova/Flickr

The Troubled Asset Relief Program was a success, according to the man in charge of the infamous government bailout program. In the final hearing on TARP before the Congressional Oversight Panel March 4, Timothy Massad, the U.S. Treasury official in charge of the program, said it prevented a collapse of the financial system and will cost taxpayers less than originally proposed. But critics on the panel said TARP helped Wall Street, not Main Street, and in terms of economic recovery the program was a failure.

Why Treasury believes TARP was a success

The Troubled Asset Relief Program ended March 4 after spending about $411 billion to bail out Wall Street banks, the U.S. auto industry and homeowners at risk of foreclosure. Timothy Massad, acting assistant secretary for the Treasury Department’s Office of Financial Stability, told the Congressional Oversight Panel for TARP that the program helped back the U.S. economy away from the brink of a depression at a time when no other government tools existed to do so. Congress authorized $700 billion for TARP at the height of the financial crisis in October 2008. About $475 billion will ultimately be spent. Initially, the cost to taxpayers was projected at $341 billion, but TARP is estimated to end up costing just $25 billion. Big Wall Street banks, such as Goldman Sachs, Citigroup and Bank of America, have paid back their bailout money. The government has recovered $277 billion in TARP money so far.

Why critics say TARP was a failure

The Congressional Oversight Panel pointed out the severely underperforming TARP-funded Home Affordable Modification Program as evidence that government bailout funds benefited Wall Street but left the rest of America in the lurch. Two years ago the administration said that HAMP would help up to 4 million homeowners avoid foreclosure. However, only about 600,000 homeowners have received loan modifications to date. The oversight panel estimated that the program would prevent less than 800,000 foreclosures, information House Republicans are using to justify killing HAMP. Massad warned against doing so. He said that killing the program would prevent tens of thousands of at risk homeowners from getting help at a time when the housing and employment markets have such a long way to go.

Moral hazard and the status quo

Critics of TARP on the oversight panel contend that TARP condoned moral hazard by assuring Wall Street banks that they are indeed “too big to fail.” Knowing they will be bailed out in future crises will encourage Wall Street banks to continue taking unnecessary risks to maximize profits. TARP critics refused to acknowledge Massad’s claim that TARP was a success because the banking system has returned to the status quo, unemployment remains unacceptably high and the U.S. economy remains weak. Joseph Stiglitz, a Nobel Laureate on the oversight panel, said that in the ultimate objective of economic recovery, TARP was a “dismal failure.”

Sources

MarketWatch

ABC News

Reuters

AIG recently raised more than $6 billion to pay back the U.S. Treasury. Photo Credit: David Shankbone/Wikimedia Commons/CC-BY

AIG and General Motors have been making great progress in paying the United States Treasury back for the bailout loans both companies received. AIG and GM were both maligned for the huge amount of money the firms received from the government, but they are returning to solvency. AIG was the single largest bailout performed under the program.

MetLife stock sold to pay back loans from Treasury

Insurance giant AIG sold a portion of its shares in the MetLife insurance company and turned over the proceeds to the United States Treasury, according to USA Today. AIG gave up 146.8 million shares of MetLife stock, from which the company raised $6.3 billion to make payments to the United States Treasury. AIG is using the funds in the effort to repurchase the $18.2 billion the Treasury holds in preferred equity shares of AIG. The government also holds 92 percent of AIG’s common stock, which was a condition of the bailout package the insurance giant received from the Troubled Asset Relief Program, or TARP. AIG was the single largest bailout, receiving more than $182 billion in total. The bailout included the Treasury and the Federal Reserve purchasing toxic asset from the company and $68 billion in loans.

General Motors on the road to health

General Motors, another notorious bailout recipient, borrowed $49 billion from the government to stay afloat, and the company has been making huge strides toward paying it back. General Motors recently announced in an earnings report that the company had made a profit every quarter of 2010, according to Reuters. This marks the first time since 2004 that the automaker has been profitable for an entire year, and it made the largest profit since 1999. GM posted a profit of $4.7 billion for 2010, though the stock price for the company has barely moved since the initial public offering in November. The Treasury still holds 33 percent of GM stock, which is a significant reduction since November 2010, when the Treasury held 61 percent. It is projected that the GM share price will have to rise to $53 per share for the government to break even.

End result of TARP

David Miller, the chief investment officer for the Troubled Asset Relief Program, said that the cost of corporate bailouts is not likely to be more than the money allocated for the housing crisis, according to Reuters. Miller said the Congressional Budget Office estimates that TARP will cost a total of $25 billion, and the Obama administration estimates slightly more than $28 billion. Treasury Secretary Timothy Geithner has said the estimate of $25 billion may be high. Various companies still owe the government $135 billion for TARP loans.

Sources

USA Today

Reuters on General Motors

Reuters on TARP estimates

Neil Barofsky was frequently critical of the way the Federal Reserve and TARP operated together. (Photo Credit: CC BY-ND/Duff McDonald/New York University School of Law Blog)

As the $700 billion Troubled Asset Relief Program winds down, a surprise defection occurred, reports Reuters. Neil Barofsky, inspector general of TARP and the top financial industry bailout auditor, handed President Obama his resignation letter. Barofsky, who will leave his post March 30, did not give a reason for his resignation.

Inspector General Barofsky appointed by President George W. Bush

Appointed in November 2008 at the height of the financial crisis, Barofsky, 40, served for more than two years. In his resignation letter to President Obama, Barofsky wrote that it “has truly been an honor to serve, particularly during such a critical time.” His dedicated service in pursuing fraud allegations, as well as pointing out where the TARP program fell short of expectations, earned Barofsky respect among his peers.

Under Barofsky’s direction, the Office of the Special Inspector General for the Troubled Asset Relief Program (SIGTARP) grew to 140 staffers, from auditors and investigators to attorneys and others. Currently, SIGTARP continues to operate regional offices in New York, San Francisco, Los Angeles and Atlanta.

As long as banks owe, TARP will live on

TARP no longer has official jurisdiction over new spending programs, and the U.S. Treasury is weaning financial firms and automakers from Federal Reserve investments. Still, because so many banks continue to struggle making payments on their massive installment loans, TARP’s mission is ongoing. Christy Romero, who will take over at least on an interim basis for the departing Barofsky, will continue to work with the 150-plus TARP banks that have missed regular installment loan payments. In addition, the largely unsuccessful Home Affordable Modification program continues to require oversight, said Barofsky, as foreclosures have not abated significantly.

The money is there; manage it wisely

Barofsky’s parting advice to the Obama administration and the Federal Reserve is to manage with care the taxpayer money that remains on the TARP table.

“With more than $150 billion in TARP funds outstanding and close to $60 billion still available to be spent, robust and effective oversight of TARP remains vitally important,” Barofsky wrote.

In addition to the billions of dollars in installment loan payments delinquent TARP banks owe, an Obama administration forecast indicates that the administrative costs of TARP will exceed $28 billion.

Sources

Reuters

SIGTARP

Barofsky grants a window into Federal Reserve mismanagement

TARP ends Oct. 3 after getting results at a discount, but "bailout" has become the dirtiest word in politics. Image: CC Willamor Media/Flickr

The Troubled Asset Relief Program (TARP) ends Oct. 3 after accomplishing its specific objectives and costing less than originally predicted. But TARP became a symbol of big government and made “bailout” a dirty word wielded by Republicans to score political points. The fact that TARP saved Wall Street, automakers and insurance giants, yet failed to perceptibly help ordinary Americans has Democrats on the defensive over a policy enacted by the previous Republican administration.

The true cost of TARP

TARP will stop extending loans Sunday, but it will continue to collect dividends and repayments. Fortune at CNN reports that it’s been two years since Congress gave $700 billion to the Treasury Department to prevent an economic collapse. The economy is limping along, Wall Street has resumed pillaging, and TARP’s final bill is much less than originally thought. According to the Treasury, the government only lent $386 billion of the fund. That money is coming back to the government at a much higher rate than expected. This week Treasury secretary Tim Geithner said he expected the total cost of TARP to be less than $50 billion.

The toxic backlash of TARP

The Washington Post reports that the TARP money spent is a fraction of what the government allocated to save the financial system. The Treasury and the Federal Reserve have spent more than $1.5 trillion to keep the mortgage and housing markets from melting down entirely. The bailouts have also embedded the federal government deeply into the private sector. As a result, political extremists are painting economic rescue as a socialist takeover.

The twisted politics of TARP

TARP, despite meeting its intended results at a discount, has put Democrats on the spot for defending a program that was the product of the Bush administration. ABC News reports that Republicans are hoping to take advantage of TARP’s unpopularity by linking Democrats and President Obama to “bailout,” which has become the dirtiest word in politics. For example, at a press conference Aug. 10, House Republicans used the word at least seven times while badmouthing a $26 billion state fiscal aid package moving through Congress. The Republican “Pledge to America” vowed permanently to end the program, even though it has expired already on its own.

The Securities and Exchange Commission is charging Lee Farkas with fraud. Image from Flickr.

When the U.S. federal government created the Troubled Asset Relief Program, it was intended to help bail out lenders in trouble. The cost of the TARP program has been significantly less than expected. However, the Securities and Exchange Commission is prosecuting some mortgage lenders for fraud that amounts to $1.9 billion. Lee Farkas, chairman of a mortgage lender, has been charged in federal court for defrauding the TARP program.

Taylor, Bean, & Whitaker Mortgage lenders

The majority owner and chairman of mortgage lender Taylor, Bean & Whitaker, Lee Farkas, was in charge of investments that mortgage lender sold. During the administration of TARP funds, TBW sold more than $1.5 billion in “fabricated or impaired loans” to Colonial Bank. These loans helped Colonial qualify for bailout funds from the federal government. While Taylor, Bean & Whitaker under Lee Farkas used to be one of the largest non-bank mortgage lenders in the U.S., it filed for bankruptcy in August of 2009.

The alleged crimes of Lee Farkas

While he was the head of the mortgage lender, Lee Farkas allegedly defrauded the SEC of more than $1 billion. The Securities and Exchange commission alleges that Farkas sold $1 billion in “damaged” mortgage loans and $500 million in fake loans. Lee Farkas also allegedly headed up a “bogus equity investment” that helped Colonial Bank qualify for TARP funds. These actions, along with other alleged crimes, resulted in losses of more than $1.9 billion of TARP funds.

Federal Reserve improving oversight

The Chairman of the Fed, Ben Bernanke, is working on two fronts to improve the oversight the Fed has of the financial industry. In general, the Fed has come out in support of the financial reform bill working its way through Congress. Separate from the financial reform bill, the Fed and SEC are also working together to beef up oversight and prosecution of financially dangerous or fraudulent practices.