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.

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The bailout ROI

I dissed the entire bailout move and have now been proven beyond wrong. Who knows how we got to this point, but the return-on-investment has been dramatic.

From the link:

U.S. taxpayers earned an annualized 8.5 percent return from the government’s bailout of 49 financial firms, underscoring efforts by the industry to speed up repayments and warrant repurchases, according to a report by SNL Financial.

Firms such as Citigroup, (C) which still has common shares held by the U.S. Treasury Department, and rivals that have made partial redemptions were excluded from the analysis, SNL Financial said in a statement on Monday.

Proceeds from Troubled Asset Relief Program (TARP) warrant repurchases and auctions led to a surge in returns through March 30, SNL said. So far, since the start of the program in late 2008, 64 institutions have fully repaid government aid.

White House foreclosure plan under watchdog fire

And seems to be for very good reason — the program just didn’t even come close to delivering on alleviating Main Street pain, and to make matters worse for homeowners in need of relief the Treasury Department still claims offering to help with a troubled mortgage counts as a success. Yes, the government is trying to say starting the process is just the same as actually following through and helping someone stay in their home. What a mess.

From the link:

The Special Inspector General for the Troubled Asset Relief Program said the Treasury Department set targets that weren’t “meaningful,” mismanaged the implementation of the program, and now risks a substantial number of “re-defaults,” with many participants ultimately losing their homes anyway.

The administration’s $75 billion loan modification program may help as little as 1.5 to 2 million people, about half the number Obama said it would when he first unveiled the program in February 2009, the inspector general, Neil Barofsky, wrote in a report.

Recently, Treasury Department officials have come under fire for saying the initial goal applied only to offering trial modifications, as opposed to permanent help.

“Continuing to frame HAMP’s success around the number of “offers” extended is simply not sufficient,” Barofsky wrote, referring to the Home Affordable Modification Program.

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.

The bank bailout may end up in the black

Who’d a thunk this a year ago?

From the link:

The Treasury Department expects to recover all but $42 billion of the $370 billion it has lent to ailing companies since the financial crisis began last year, with the portion lent to banks actually showing a slight profit, according to a new Treasury report.

The new assessment of the $700 billion bailout program, provided by two Treasury officials on Sunday ahead of a report to Congress on Monday, is vastly improved from the Obama administration’s estimates last summer of $341 billion in potential losses from the Troubled Asset Relief Program. That figure anticipated more financial troubles requiring intervention.

The officials said the government could ultimately lose $100 billion more from the bailout program in new loans to banks, aid to troubled homeowners and credit to small businesses.

Still, the new estimates would lower the administration’s deficit forecast for this fiscal year, which began in October, to about $1.3 trillion, from $1.5 trillion.

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.

Small business loans down over $10B

Yep, you read that header correctly — more than ten billion dollars of available credit has disappeared for small business while Wall Street and big banking rolls in federal funds.

Disappointing.

From the link:

The 22 banks that got the most help from the Treasury’s bailout programs cut their small business loan balances by a collective $10.5 billion over the past six months, according to a government report released Monday.

Three of the 22 banks make no small business loans at all. Of the remaining 19 banks, 15 have reduced their small business loan balance since April, when the Treasury department began requiring the biggest banks receiving Troubled Asset Relief Program (TARP) funding to report monthly on their small business lending.

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 recipients to get White House mandated pay cut

I’m no fan of the government telling a business how much it’s going to pay executives, but you have to say the major TARP recipients brought this on themselves. After the forced bailout (most of these players had no choice but to go along with the bailout) the situation became no longer business as usual. Somehow that point was lost on the C-level at Citigroup, BoA, GM, Chrysler, GMAC, Chrysler Financial, and especially AIG. The end result? The pay packages of 175 top executives are going to start seeing much lighter pay checks.

Cue an entire chorus of nanoscale violins.

From the link:

The Obama administration will soon order the nation’s biggest bailed-out companies to drastically cut the pay packages of 175 top executives, a senior administration official confirmed to CNN Wednesday.

Kenneth Feinberg, who was named the White House’s pay czar in June, will demand that each of the seven largest bailout recipients lower the total compensation for their top 25 highest paid employees by 50%, on average, the official told CNN.

And here’s the big number:

Under the plan, which is expected to be officially released by the Treasury Department next week, annual salaries for executives at those seven firms are expected to fall 90%, on average, the official said.

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.”

Small business stimulus

The stimulus plan finally comes to Main Street. This is something that should have happened months ago. Better late than never, I guess.

From the link:

President Obama will visit a Maryland business on Wednesday afternoon to announce initiatives to encourage lending to small businesses. According to an administration official, the proposal will increase the caps for existing Small Business Administration loans and give smaller banks better access to funds from the Troubled Assets Relief Program.

An industry official involved in S.B.A. lending said the White House would propose raising the cap on the agency’s flagship 7(a) loan from $2 million to $5 million. But other programs are likely to see increases, too, including the 504 program.

There is one caveat, though:

Changing S.B.A. programs would be subject to Congressional approval.

Sanity from the Hill on small business

Hear, hear Mark Warner!

From the link:

The Obama administration should spend more money from the $700 billion bank rescue on programs to increase lending to small businesses, said Senator Mark Warner, a Virginia Democrat on the banking committee.

Warner and other lawmakers are pushing regulators to consider ways to jumpstart credit to small companies, which he says is dwindling even after efforts to provide government support. The senator urged action at a meeting of the Senate Democratic Caucus yesterday.

Treasury Department officials said they are in discussions with Warner, Senator Mary Landrieu, a Democrat of Louisiana, and Republican Olympia Snowe from Maine, on how to address the issue, either through the Troubled Asset Relief Program or new legislation. A $15 billion program to purchase pools of small- business loans, announced in March, has attracted little interest even though it’s ready for use, an administration official said.

“The original notion of the TARP was, we were going to help Main Street by bailing out Wall Street,” Warner said in an interview. “We’ve seen Wall Street recover, but we have not seen Main Street reap the direct benefits.”

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.

TARP turns one — a birthday with no candles, no cake from me

TARP, the original bailout jammed through in a blind panic, turns a year-old tomorrow. Its expiration is scheduled for the end of the year unless Treasury Secretary Tim Geithner decides to keep it rolling.

From the link:

As of Saturday, it will have been a year since the U.S. Congress created the $700 billion Troubled Asset Relief Program, originally intended as a bailout just for the financial system.

Emphasis might be placed on the word “Troubled,” as TARP has been plagued by controversy since conception. For the past year, the Bush and Obama administrations have used the program as a bailout smorgasbord, with entrees for the auto and mortgage industries, the securitization market for consumer goods, American International Group (See “What AIG Really Owes Taxpayers”) and the banking sector at large. Toxic assets remain on bank balance sheets, Congress is still busy plugging TARP’s holes on executive compensation limits and the program is a significant part of the country’s projected $1.6 trillion deficit for 2009.

Here’s a handy bailout tracker …

… from CNNMoney.

Want to see what’s happening with all that bailout money and what’s gone where with Troubled Asset Relief Program, Federal Reserve rescue efforts, Federal stimulus programs, FDIC bank takeovers and other financial and housing initiatives, plus the dollars handed over to Amerian International Group, take a few minutes and hit the link.

Bush administration overpaid in bailout

No surprise there. Bush 43 was an eight-year corporate Xmas morning.

From the link:

The Bush administration overpaid tens of billions of dollars for stocks and other assets in its massive bailout last year of Wall Street banks and financial institutions, a new study by a government watchdog says.

The Congressional Oversight Panel, in a report released Friday, said last year’s overpayments amounted to a taxpayer-financed $78 billion subsidy of the firms.

The findings added to the frustrations of lawmakers already wary of the $700 billion rescue plan, known as the Troubled Asset Relief Program. Congress approved the plan last fall, but members of both parties criticized spending decisions by the Bush administration and former Treasury Secretary Henry Paulson.

Financially ailing insurance giant American International Group, which the Treasury Department deemed to be too big to be allowed to fail, received $40 billion from the Treasury for assets valued at $14.8 billion, the oversight panel found.

Bailout already panned by oversight board

Who could have seen this coming? A crazy, somewhat ad hoc tossing of money toward Wall Street, and looks like the Rust Belt very soon.

Then you have the spectacle of Merrill Lynch CEO John Thain asking for (and quickly backtracking on) a $10 million bonus in a year that saw his company get bought out after recieving $10 billion in government money in October. Talk about out of touch, and exactly why this bailout is ridiculous. Wall Street is still playing by different rules.

I’m no fan of oversight and regulation, but the rules change when government money is involved. Business is one thing, but once you go on the dole the rules change and any business ought to expect and accept a high level of oversight, and maybe even a higher level of regulation (wait, while I take a deep breath after typing that), until that business can repay the government and go back to market on its own two feet, so to speak. 

From the first link:

The report said that Treasury must establish clear measures to gauge the $700 billion Troubled Asset Relief Program. The special panel, which was set up by Congress to oversee the bailout, also said it is “essential” that the Treasury ensure taxpayer funds are being used for their intended purpose.

“American taxpayers need to know that their money is having a tangible effect on improving financial stability, credit availability, and the economy as a whole,” the draft report said. “As a first step, Treasury needs to provide a detailed assessment of whether the funds it has spent so far have had any effect – for better or worse – in these areas.”