In the interests of full disclosure and blogospheric transparency, I should admit I was against the TARP program when proposed by the flailing George W. Bush administration in 2008. It seemed a rush job and a chance for the administration’s friends to get painlessly out of an operation they had botched themselves with absurdly risky loans divvied into absurdly anonymous proportions to resell back to their colleagues. Yet the ledgers of surviving banks (albeit too-much-bigger-to-fail) and the money moving back toward the Treasury suggest that TARP might have been the best bad way to keep the economy at least alive on the table. But as TARP passed with overwhelming support through a Democratically controlled Congress to a Republican White House, who gets political credit?
Reports at the end of last week showed two surprising outcomes of the TARP: (a) Only about half of the allocated $700 billion has gone out the door to banks and insurance firms (and General Motors), yet (2) much of that payback was via the purchase of stocks, which could be sold at a profit to the Federal Government – thus making TARP a profitable investment for taxpayers.
Jackie Calmes reported on The New York Times on Friday:
Now Treasury reckons that taxpayers will lose less than $50 billion at worst, but at best could break even or even make money. Its best-case assumptions, however, assume that A.I.G. and the auto companies will remain profitable and that Treasury will get a good price as it sells its corporate shares in coming years. Whatever the final losses from housing, auto companies, A.I.G. or smaller banks, those will be offset by taxpayers’ profits from the big banks that have been the focus of their ire since 2008.
They have repaid their loans and Treasury has collected about $25 billion more from dividends and proceeds from the sale of warrants held as collateral, officials say. Many smaller banks hold on to their loans, however, reflecting their weakness and the desire of some others to keep the money given its advantageous terms. Scores are behind on dividend payments to the Treasury.
Even shares of AIG (American International Group, arguably the company/symbol of all that was wrong with the financial system and the TARP required to rescue it) rose in after-hours trading this weekend to a level that would ensure at least the government breaking even with its loan. Barrons Online remained cautious in its analysis at the end of last week, but admitted that the Government’s trading of AIG’s preferred shares did not seem to panic investors generally, which would be good for AIG and ultimately (pretty) good for paying back TARP loans. Daniel Indivigio at TheAtlantic.com is one of the most smitten of commentators about the the success of TARP (and the likelyhood of TARP 2.0 in your children’s lifetimes), though he seems rather cold-hearted about the demise of much local banking.
And though there has been a flurry of discussion about this issue over the last three or four days, many market-watchers saw profitability for the TARP even this past summer, which might mean Vice President Biden’s much maligned moniker, “Summer of Recovery,” could apply at least to big banks and the Treasury.
Which is where the political problems arise going into the midterm elections. Within an otherwise sharp and detailed analysis from Baron’s comes this rather tone-deaf comment: “It’ll be interesting to see if there are political repercussions from a deal that could be construed as friendly to AIG and its holders.” IF? Ask Republican Senator (for a few more weeks) Robert Bennett about ‘if.’ Calmes in her Times article quotes him as defending the policy he uncomfortably backed, despite the fact his party would not renominate him for the midterm election:
“My career is over,” [Bennet] added. “But I do hope that we can get the word out that TARP, number one, did save the world from a financial meltdown and, number two, did so in a manner that, I believe, won’t cost the taxpayer anything. And even if it did not all get paid back, it was still the thing to do.”
Skeptics (like yours truly) might need to admit that the federal treasury could end up making money on the deal and the banking system (dysfunctional though it remains) is at least better than keeping bank notes in the mattress. Unfortunately for any Congressperson around in 2008-2010 hoping to stick around to 2012-2014, more Americans have mortgages than mainline credit from investment banks, and they feel mostly debt and resentment. So even if TARP ends up in the black for the national checkbook, neither Republican voters nor Democratic are going to be thanking the government (albeit for different reasons) for its investment come November.
