Karl Rove, fiscal hypocrite

Of course that should surprise absolutely no one who paid any fiscal attention from 2001 to January 2009.

Daniel Mitchell blogging at Cato@Liberty rips Rove a new one for essentially doing what he always does — pretending the unfathomable fiscal recklessness of the Bush 43 years never happened.

From the link:

Rove has zero credibility on these issues. In the excerpt below, Rove attacks Obama for earmarks, but this corrupt form of pork-barrel spending skyrocketed during the Bush years. Rove rips Obama for government-run healthcare, but Rove helped push through Congress a reckless new entitlement for prescription drugs. He attacks Obama for misusing TARP, but the Bush administration created that no-strings-attached bailout program.

GM lying about paying back fed bailout

To paraphrase Paul Harvey, here’s the rest of the story …

From the second link:

General Motors CEO Ed Whitacre has bragged in TV commercials and newspaper columns that GM has paid back its bailout “in full and ahead of schedule.”

As with the Pontiac Aztek, an ugly exterior masks an ever darker problem: Whitacre is being fanciful to the point of deceit. GM received $50 billion in TARP funds (never mind that TARP was only supposed to cover financial institutions). About $7 billion of that came in the form of a straight-up, low-interest loan. And about $13 billion came in the form of an escrow account.

So how has GM, which lost $38 billion in 2007 even as it sold 9.4 million cars, paid back its debt? It took money from the escrow account to pay back the $6.7 billion loan.

Small business still being ground down by credit crunch

I’ve done a lot of blogging about the ongoing credit crunch, and last week exposed an article at Forbes that attempted some linguistic sleight-of-hand to argue — quick look at my waving hand over here — there is no credit crunch.

Here’s an article on the same topic from CNN Money that actually cites some real numbers on just how tough things remain for Main Street, and maybe just a little bit why small- to medium-sized business owners are still chafed over the bank bailouts from the fall of 2008.

And yes, small business and personal households are truly suffering under a crippling credit crunch that does not have an ending point in sight.

From the link in the second graf:

Small business loans continue to dry up at the nation’s biggest banks. Eleven top TARP recipients — including Wells Fargo, by far the nation’s largest lender to small companies — cut their collective small business loan balance by more than $2.3 billion in December, according to a Treasury report released late Tuesday.

The drop marked the eighth consecutive month of declines for the 11 banks. In that time, their total loan balance has fallen 7%, to $169.4 billion. Seven of the reporting banks have cut their small business loan balance every single month.

“Credit is still tight for many small businesses,” the Treasury acknowledged in a Feb. 10 report.

The 22 banks that got the most help from the Treasury’s bailout programs have been filing monthly lending reports to the government, and since April, they’ve been required to break out their small business lending. But as of this month’s report, the 10 banks that have completely repaid their bailout funds in June are no longer required to divulge their lending.

Recycling TARP funds for small business loans

As much as I think the deficit is a significant issue, the ongoing credit crunch for small business is a much more pressing issue for the economy. Recycling money that bailed out Wall Street to give Main Street a leg up is probably good politics, but more importantly, it is good policy.

From the link:

President Obama called on Congress Tuesday to recycle $30 billion of the remaining Troubled Asset Relief Program (TARP) funds into a new government lending program offering super-cheap capital to community banks that boost their small business lending this year.

Touted last week in Obama’s State of the Union address, the plan is the latest incarnation of a proposal the president first floated in October. While credit conditions for large businesses have improved over the past year, small companies are still widely reporting problems finding the capital they need to fund their operations.

TARP is a profit center

Who’d a thunk this last October when this thing was jammed through Congress.

From the link:

Guess what? The federal government will make money on bailing out the banks.

According to new numbers issued today by the non-partisan Congressional Budget Office, a key part of the much-loathed Troubled Asset Relief Program, or TARP, has become a profit center for the U.S. government.

The CBO projects the government will ultimately make a profit of $7 billion from assisting the banks: $3 billion from the Capital Purchase Program, in which the government propped up banks by purchasing preferred stock; $2 billion from helping Citigroup (C, Fortune 500); and another $2 billion from helping Bank of America (BAC, Fortune 500).

In other words, the banks are on track not only to pay taxpayers back all the $200 billion plus we’ve lent them, but put a dent — albeit a small one — in our enormous budget deficits.

I blogged against the massive bank bailout and basically threw up my hands by the time ARRAS came around. I’m happy to report I was completely wrong at the time. TARP and subsequent stimulus may not have been the best possible solution (there’s no way to know, find out or even guess), but it’s not a failure and could even be provisionally considered a success. Reducing the budget by a penny would be a success for the program in my book.

TARP costs coming in $200B under expectations

Looks like the Obama administration is going to put some toward the deficit and some toward Main Street. Given the facts on the ground, this sounds like fairly conservative fiscal policy to me. Quite a revelation after the last eight years.

From the link:

The government recently announced that the Troubled Asset Relief Program (TARP), established at the height of the financial crisis last year to recapitalize the nation’s banking system, will cost $200 billion less than expected. Obama wants that money redeployed into additional stimulus initiatives: “This gives us a chance to pay down the deficit faster than we thought possible and to shift funds that would have gone to help the banks on Wall Street to help create jobs on Main Street,” Obama said Tuesday.

Getting Main Street hiring again is key to job recovery: Small businesses have created 65% of new jobs in the past 15 years, according to government estimates. Obama’s latest set of proposals includes several brand-new measures, as well as extensions of existing stimulus acts.

TARP stopped an “economic panic” …

… as a starting point for the entire stimulus program according to a Congressional Oversight Panel audit, but the overall report card looks like a middling “cee” at best.

From the link:

The independent panel that oversees the government’s financial bailout program concluded in a year-end review that, despite flaws and lingering problems, the program “can be credited with stopping an economic panic.”

The Congressional Oversight Panel, which issued the report, was created in October 2008 by the same law that established the $700 billion Troubled Asset Relief Program. The panel has often been critical of the Treasury Department’s management of the bailout operation, especially at its start in the Bush administration but also under the Obama administration.

In the latest monthly report released on Wednesday, the panel again criticized the Treasury Department under Secretary Timothy F. Geithner for “failure to articulate clear goals or to provide specific measures of success for the program” as it has morphed over time from rescuing financial institutions to propping up securitization markets, auto manufacturers and home mortgages in danger of default. The panel also described the program’s foreclosure mitigation efforts as inadequate.

Mr. Geithner announced Wednesday that the administration would extend the bailout program until Oct. 3, 2010. In a letter, Mr. Geithner told lawmakers that the extension was needed to assist families and stabilize financial markets.

Another TARP bank pays the nation back

This week it’s Bank of America. Good to see the money back in public coffers, but this move doesn’t exonerate the company for its malfeasance over the past year. At any rate it’s another $45 billion in bailout dollars the taxpayers get back, plus an extra $2.54 billion in Treasury payments.

Of course do you think BofA, or any other of the TARP banks for that matter, would be magnanimously paying the public back so quickly if the Feds hadn’t cracked down this year and seized control of executive pay and other business functions? I want the banking industry working outside of government influence, but I also want the banking industry working without using public money with no-strings-attached.

TARP funds for deficit reduction?

Even though this move really smacks of naked politics there are far worse things TARP money could go toward than helping to drive down the outrageous deficits racked up over the last eight fiscally irresponsible years.

From the link:

The Obama administration, under pressure to show it is serious about tackling the budget deficit, is seizing on an unusual target to showcase fiscal responsibility: the $700 billion financial rescue.

The administration wants to keep some of the unspent funds available for emergencies, but is considering setting aside a chunk for debt reduction, according to people familiar with the matter. It is also expected to lower the projected long-term cost of the program — the amount it expects to lose — to as little as $200 billion from $341 billion estimated in August.

The idea is still a matter of debate within the administration and it is unclear how much impact it would have on the nation’s mounting deficit levels. Still, the potential move illustrates how the Obama administration is trying to find any way it can to bring down the deficit, which is turning into a political as well as an economic liability.

TARP banks not lending to Main Street

I’ve already blogged on the upside of this issue — that is, the Obama administration is helping Main Street through expanding the lending capacity of the Small Business Administration and letting smaller banks in on some TARP action. The downside of this issue is eight of the top ten TARP recipient banks have cut small business loans since May. And that is disgusting.

From the second link:

The TARP program was set up to recapitalize banks so that they would bolster their lending to consumers and small businesses. In March, as the administration and the SBA took steps to stimulate small business lending, Treasury Secretary Tim Geithner ordered the top TARP recipients to begin sending the Treasury monthly reports on their small business lending activity.

“We need every bank in the country to do everything in their power to provide the credit that small businesses need to operate, expand and add jobs,” Geithner said as he announced the new requirements. “Given the role many banks played in causing this crisis, you bear a special responsibility for helping America get out of it.”

But in the five months they’ve been sending in those reports, the 22 biggest TARP recipients haven’t increased their small business lending. Instead, they’ve cut their outstanding balances by $8 billion. As of Aug. 31, the 22 reporting banks held a collective small business loan balance of $261.3 billion, down 3% from when they began reporting in April.

Check out this list of shame:

Treasury blasted on TARP transparency

And rightly so. When the government hands out $700 billion with essentially no debate as was the case a  little over a year ago, the public deserves to know where that money went and the government damn sure better be able to account for every cent. Or at least every $100,000.

From the link:

In a scathing report out Wednesday, a government watchdog blasts the Treasury Department for its handling of a $700 billion bailout program and for not adopting all of its earlier recommendations.

Special Inspector General Neil Barofsky, who is in charge of overseeing the Troubled Asset Relief Program (TARP), said Treasury’s failure to provide more details about the use of TARP funds has helped damage “the credibility of the program and of the government itself, and the anger, cynicism, and distrust created must be chalked up as one of the substantial, albeit unnecessary, costs of TARP.”

Barofsky has made 41 recommendations to better implement the program, of which Treasury has executed 18 and partially adopted seven.

One proposal calls for Treasury to require all of the hundreds of TARP recipients to report how they use the funds, which the Treasury has applied to only three of the largest recipients —American International Group,Citigroup and Bank of America.

Barofsky also describes at least nine unimplemented proposals, saying their adoption “could help bring greater transparency to TARP and answer some of the criticisms of the program.”

The Treasury Department lied …

… pushing through the TARP bailout a year ago? I’m shocked (er, not really).

From the first link:

A government watchdog says federal officials weren’t entirely honest with the public about the health of the first 9 financial firms that got federal bailouts, according to a report released Monday.

Bailout special inspector general Neil Barofsky says in an audit that Treasury Department officials painted an overly rosy picture, creating “unrealistic expectations,” when they called the first bailout banks “healthy” institutions that would be able to lend more with government help.

“It is not our intent to suggest that government officials should make public their concerns over the financial health of individual institutions, but rather that government officials should be particularly careful, even in a time of crisis, of describing their actions (and the rationales for such actions) in an accurate manner,” the report stated.

Treasury appeared to disagree with the assessment of the Special Inspector General of the Troubled Asset Relief Program (SigTARP), saying “people may differ” on the phrasing of the original bailout announcements.

Foreclosure prevention plan gets a little bigger

With all the talk about the auto industry and controversy over TARP and harping about financial bailouts recipient bonuses, et. al., Main Street gets little ink spilled its direction.

Here’s news on an expansion of the Obama administration’s foreclosure prevention plan.

From the link:

Treasury broadens the President’s home-mortgage plan to address second liens. But Congress may need to act to protect banks from lawsuits

The U.S. Treasury Dept. broadened the Obama Administration’s foreclosure-prevention program on Apr. 28 in a bid to resolve a persistent obstacle to cleaning up problem mortgages. But some financial officials say the fledgling program’s success still hinges on controversial legislation pending in Congress, which is also expected to take up another contentious bill that would allow bankruptcy judges to reduce the principal owed on a home.

A brilliant bank bailout plan …

… from Andy Kessler. Andrew Sullivan called this idea “wacky,” but I like it. Certainly not all that wacky — just a way outside the box.

From the link:

Now with TARP 2.0, renamed a friendly Financial Stability Plan, the idea is to entice private capital to buy these bad loans and derivatives in an effort to set the “market price.” But Mr. Geithner hasn’t solved the dilemma of banks not wanting to sell and become insolvent. Moreover, no one is going to buy these securities ahead of Mr. Geithner’s action with the “full resources of the government” to bring down mortgage payments and reduce mortgage interest rates. Lower mortgage payments means mortgage-backed securities would be worth even less. Six months to a year from now, big banks may still be weak and the ugly “n” word of nationalization will be back.

Mr. Geithner should instead use his “stress test” and nationalize the dead banks via the FDIC — but only for a day or so.

First, strip out all the toxic assets and put them into a holding tank inside the Treasury. Then inject $300 billion in fresh equity for both Citi and Bank of America. Create 10 billion new shares of each of the companies to replace the old ones. The book value of each share could be $30. Very quickly, a new board of directors should be created and a new management team hired. Here’s the tricky part: Who owns the shares? Politics will kill a nationalized bank. So spin them out immediately.

Some $6 trillion in income taxes were paid by individuals in 2006, 2007 and 2008. On a pro-forma basis, send out those 10 billion shares of each bank to taxpayers. They paid for the recapitalization.

Each taxpayer would get about $100 worth of stock for each $1,000 of taxes paid. Of course, each taxpayer has the ability to sell these shares on the open market, maybe at $40, maybe $20, maybe $80. It depends on management, their vision, how much additional capital they are willing to raise, the dividend they declare, etc. Meanwhile, the toxic assets sitting inside the Treasury will have residual value and the proceeds from their eventual sale, I believe, will more than offset the capital injected. That would benefit all citizens, not the managements and shareholders who blew up the banking system in the first place.

Bank nationalization backgrounder

Courtesy of the Wall Street Journal. The topic of bank nationalization is going to be all over the place for while. If you’re wondering what it’s all about and how it might affect your day-to-day banking hit the link. Plenty of material there on loans, disadvantages and more.

A sample from the primer:

What does “bank nationalization” mean?

A nationalized bank is owned and run by the government. The shocks of the credit crisis last fall spurred lawmakers to seminationalize the banking sector; nearly 314 institutions have already signed over some of their shares and other securities to the Treasury in return for $350 billion in government TARP funds. The government could now go a step further by taking complete ownership of certain troubled banks.

Why nationalize banks?

It makes sense only if banks are in danger of failing. In Western countries, nationalization is largely used as an emergency method to prop up banks during tough times. It is typically used to lend to small and medium-sized businesses and restructure burdensome loans to consumers.

Banking stocks and TARP …

… a bad, bad combination.

From the link:

New York University Professor Nouriel Roubini, who foresaw the credit crisis, heightened investors’ panic when Bloomberg reported on Jan. 20 that he estimated credit losses for U.S. firms could hit $3.6 trillion. Thus, the U.S. banking system—with just $1.4 trillion in capital—is “effectively insolvent,” Roubini said, according to Bloomberg. “The problems of Citi, Bank of America, and others suggest the system is bankrupt,” he added.

The supposed cure for this is the federal government’s $700 billion Troubled Assets Relief Program, or TARP, enacted late last year. However, a growing number of investors and analysts warn that the TARP program may come at a large cost to bank shareholders.

Banks get TARP relief only by giving the federal government preferred shares. On Jan. 16, BofA issued the government another $20 billion in preferred stock that pays an 8% dividend. In exchange, the government agreed to limit future losses on $118 billion in BofA investments, including a large amount of the portfolio acquired through BofA’s buyout of Merrill Lynch.

“Increased support by the U.S. government provides protection on certain problem assets,” notes Deutsche Bank (DB) analyst Mike Mayo, but “it also comes with more restrictions on [BofA] as a whole.”

The Fed equals fail

This news isn’t really news for anyone who’s been paying attention.

From the link:

The U.S. Treasury has done nothing to ensure a $700 billion financial bailout fund is used to stabilize the weak mortgage market, which caused the U.S. economic crisis, a congressional watchdog said on Friday.

Elizabeth Warren, who heads a congressionally appointed oversight panel, told ABC news there was no evidence the Treasury had used money from the Troubled Asset Relief Program to support the housing market by avoiding preventable foreclosures.

“There’s just no money that’s gone in that direction. This one’s not even arguable,” she said. “The TARP funds themselves have not been used in this way despite congressional statutes requiring them to do so.”

In a draft of a report to be released on Friday, the panel said the Treasury has failed to reveal its strategy for stabilizing the financial system and had done little to track how the money was used.

It cited “significant gaps in Treasury’s monitoring of the use of taxpayer money,” including asking financial institutions to account for what they have done with taxpayer funds.

It also questioned whether Treasury has fulfilled its obligations to Congress.

“For Treasury to take no steps to use any of this money to alleviate the foreclosure crisis raises questions about whether Treasury has complied with Congress’s intent that Treasury develop a ‘plan that seeks to maximize assistance for homeowners,'” the panel said in the report.

The panel said the Treasury hasn’t used any of TARP’s first $350 billion tranche to help borrowers refinance or deal with mortgages that have a face value that is more than the current market value of their homes.

“Treasury needs to be clear as to what, if anything, it has done, and if it insists on taking credit for private sector efforts, it must explain what ‘help’ means,” the draft report said.