Some Ugly Truths About the Bank Bailouts
131 banks in America are still in the Troubled Asset Relief Program, and, according to this article and the report of the Special Inspector General of the program (link here), over 280 of the 707 total banks (39.6%) exited without paying back the government as agreed. The cost?
"While most banks paid back the money with interest, there was rampant fraud in the program, which itself was costly. And, in the end, TARP has effectively lost, or written off, $35 billion with another roughly $1 billion outstanding. The Treasury Department also has spent $1.5 billion running TARP since 2008."
The $1 Billion is misleading in that the program is still owed $37.5 Billion from the auto bailouts, the AIG bailout, and something called the "Capital Purchase Program." And how about relief for homeowners? How's that coming along?
"At the start of TARP $45.6 billion was set aside for principal reduction and refinancing (Making Home Affordable program). At the end of last year, less than a quarter of the money, $9.9 billion, had been used."
Interesting: TARP lost $35 Billion with another roughly $1 Billion outstanding. What is the shortfall in the amount allocated to homeowners? $35.7 Billion. Fancy that.
The tales of cost overruns and ridiculous spending are about what we would expect but still worth a read. Meanwhile the auto companies and AIG haven't paid their funds back.
"Also outstanding is $16.6 billion given to the auto industry ($2.93 billion to Chrysler, $11.2 billion to General Motors Co., $2.5 billion given to Ally Financial), and $13.5 billion given to systemically important institutions (AIG). The capital purchase program is owed another $5.4 billion."
TARP was a political solution to a financial problem. The worst day of the 2008 crash was the day after the US House of Representatives voted down the original TARP (The Dow Jones Industrial Average fell 777 points; the largest point drop in history). TARP finally passed on October 3. The politicians had "done something" about the problem, which for most was enough to secure re-election a month later. But the stock market still went down another 20% before bottoming. The very bottom was the day before the regulators changed the rules for mark-to-market accounting of bank assets.
TARP probably saved some banks that would have otherwise failed. But as with most government efforts to "do something", the program wasted staggering amounts of money, did little to actually help the intended beneficiaries, and lays the groundwork for the next bailout because of the moral hazard it creates. We are opposed to government bailouts except perhaps in instances where an industry suffers great harm from something truly unforeseen.
If your company is in danger of great harm, and you doubt your prospects for a government bailout, contact us to arrange a consultation.
