10.01.2010
More Semantics About Bank Bailouts – They Are Not Over
Original article written by Net Advisor™
Today the headlines seem to read, “Two years and billions later, bank bailout program finally ends.”
The news sounds like a relief, but what is missing is the TARP program is ending for a reason. It has to.
Here is the key fact:
(1) The TARP program was due to expire on October 3, 2010 anyway.
“Under its original authorization, the TARP would have expired at the end of 2009. Late last year, however, the Secretary of the Treasury exercised his legal authority to extend the program until October 3, 2010, the latest date authorized by statute.”
— Source: Congressional Oversight Panel (CBO) (view pdf) (view HTML)
Thus, TARP is not ending because it was successful, or there are no more financial risks to banks, or that because of some magical miracle by the Administration. It was going to end anyway by law.
The Obama Administration is simply trying to grab credit for ending the program, when in fact it was going to end anyway, and there is no congressional support to continue TARP in its present form, especially one month before the Mid-term elections.
TARP gained further controversy as a “Wall Street bailout” which in fact it was never used for its original intent, which essentially was to “buy toxic mortgages” from banks (Source: TARP CBO Report, Page 1 (A) & (B), 12-31-2008).
Arguably, there was nothing that was going to stop Washington Mutual or Wachovia from failing. Over 120 smaller and regional banks have missed their quarterly TARP dividend payments, and 5 banks (officially) under TARP have failed (Source: Reuters). This of course does not count the 127 smaller and regional bank failures in 2010 alone, or that the FDIC is running a bailout program of its own separate from TARP at a cost of $45.4 Billion thus far (Source: CNN).
“No More Tax-Funded Bailouts. Period.” We’ll, not exactly.
Obama stated on July 21, 2010, “There will be no more tax-funded bailouts. Period” (Source: ABC News).
Further, “the president and his administration have also promised that the days of taxpayer-funded bailouts are over, thanks to the sweeping Wall Street reform bill that emerged from Congress in July” (Source: ABC News).
Since this speech, 24 banks have failed and counting weekly, and the acquiring banks are receiving federal guarantees to protect against loan losses.
The FDIC, under agreement with the acquiring banks, would thus absorb (guarantee) 95% of the loan losses. The FDIC has said that it is now decreasing these guarantees, however it is still offering coverage of 80% of losses if another bank takes over a failed bank.
— Source: Bloomberg
If you think that is a bailout of these smaller and region banks, you are correct.
Of the $700 Billion in TARP funds issued, according to Reuters $187 Billion remains unpaid. Of that most can be attributed to AIG, and General Motors which are not banks. (Source: Reuters).
According to MarketWatch, citing the most recent TARP disclosure (09-28-2010), there are $255 Billion of TARP loans outstanding.
Chrysler also has a token $10.5 Billion outstanding TARP loan, of which the Congressional Oversight Panel (COP) does not expect that loan to be fully repaid.
All the major banks repaid back their TARP loans, albeit in controversy that a number of major banks have long been rumored that they were forced to take TARP funds because the government allegedly did not want to show which banks were at failure risk and which ones were not headed for failure. Thus, the largest banks are equally “had” to take on $25 Billion in TARP funds. (TARP Report, 09-28-2010, PDF 43 pps).
Further, TARP was only a small part of the “bailout;” it was the only program that had a name that everyone paid attention to. The public may not be aware that “the Treasury and the Federal Reserve alone have committed more than $1.5 trillion to prop up the faltering mortgage and housing markets” (Source: Washington Post).
The total financial commits to the bailouts; not including stimulus and Obama deficits is $11 Trillion. Of that the U.S. government including the Treasury and the FED as invested $3 Trillion in bailout money.
— Source: CNN (2009)
That is a huge difference in the TARP program, but few will want to discuss these numbers.
In July 2010, “the federal government’s overall support for the financial system surged to $3.7 trillion during the past year, according to a top government watchdog” (Source: The Hill.com).
What is also not over and has yet to be addressed is the biggest part of the whole housing mess: Fannie Mae and Freddie Mac. So far the U.S. government has committed $745 Billion to bailout out those mismanaged entities, with $130.6 Billion on the taxpayer tab so far (Source: CNN). Fannie and Freddie hold some $5 Trillion of U.S. mortgages, or mortgage guarantees (Source: CNN-Money).
Obama’s July 21, 21010 speech claimed sweeping Wall Street reform bill, but failed to address the central problems that helped crash the housing market.
Further reading:
07.26.2010 “Obama Signs FINREG, but New Laws Leave Out Real Reform”
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