Posts Tagged ‘Henry Paulson’

Treasury: TARP Repayments Now Surpass Debt

Tuesday, June 29th, 2010

TARP repayments total $194 billion; $190 billion is still outstanding.  The $700 billion Troubled Asset Relief Program (TARP) is turning out to be a better bet than many thought at first. According to the Treasury Department, the amount of money repaid by banks and other recipients now exceeds TARP’s outstanding balance.  In a monthly report to Congress on the program, TARP repayments total $194 billion; $190 billion is still outstanding.  A large chunk of that came when Treasury sold 1.5 billion Citigroup shares it had acquired when bailing out the bank, netting $6.18 billion.

“TARP repayments have continued to exceed expectations, substantially reducing the projected cost of this program to taxpayers,” said Herbert M. Allison, the Department of the Treasury’s assistant secretary for financial stability.  “This milestone is further evidence that TARP is achieving its intended objectives:  stabilizing our financial system and laying the groundwork for economic recovery.”

Created during the darkest months of the financial meltdown in the fall of 2008, TARP originally was intended to purchase toxic subprime mortgage securities from banks.  Henry M. Paulson, who was Treasury Secretary at the time, later altered TARP to channel money into banks to stabilize them and provide capital to encourage them to make loans at a time when the capital markets were frozen.  TARP funds bailed out 707 American banks – including Citicorp and Bank of America — to the tune of $205 billion.  Another $331 billion was used to bail out companies such as General Motors and Chrysler.

Banks are making a concerted effort to repay the money to avoid strict executive compensation limits.  By May 31, 71 banks had repaid 100 percent – or $137 billion — of their TARP money.  President Barack Obama hopes to recoup some TARP losses with his proposal to tax the 50 largest financial institutions.  This would net approximately $9 billion annually over 10 years.  Congress is considering the legislation, which faces stiff opposition from the big banks.

$700 Billion Financial Bailout Plan Still Evolving

Friday, November 21st, 2008

Treasury Secretary Henry Paulson is sitting on $350 billion dollars of the taxpayers’ money, and can’t quite settle on the best way to spend it.  When approved by Congress in October, the $700 billion Troubled Assets Relief Program (TARP) bill’s purpose was to purchase bad mortgage assets that had frozen the credit markets. The Treasury Department has already used approximately half of the money to capitalize banks and prevent insurer American International Group (AIG) from going into financial default.  The problem with the TARP bill is that conditions keep changing and Treasury is altering its focus to one of helping banks that are sound to stay healthy – with the ultimate goal of thawing credit.  Meanwhile, Treasury is coordinating with the Federal Reserve to restore consumer confidence so people start buying cars, taking out student loans, or even using their credit cards again.  The question is:  which version of TARP eventually will unfreeze the debt markets.  Given the complexity of the situation, there is no simple answer.  Because both Wall Street and Main Street are equally impacted, TARP is likely to end up providing some amount of relief to both groups.

So, the question is, which TARP is it?  We invite your comments.

http://www.reuters.com/article/ousiv/idUSTRE4AB7P820081112

http://www.chicagotribune.com/business/chi-thu-crisis-bailout-shift-nov13,0,2664351.story

The Federal Government Takes First Steps to Bail Out Banks

Tuesday, October 21st, 2008

The Treasury Department is spending the first $250 billion of the $700 billion rescue bill that Congress recently approved in an attempt to defuse the financial crisis that has dominated the headlines for weeks.  According to a recent article on GlobeSt.com, the move – which partially nationalizes the banking system – is seen by some as conflicting with the free-market principles that typically have characterized the American economy. To shore up the United States banking system, the Treasury Department is partially nationalizing nine banks by using $125 billion to purchase minority stakes in major financial institutions.  Although the banks haven’t been named, they are believed to include Citigroup, Goldman Sachs, Wells Fargo, J.P. Morgan Chase, Bank of America, Merrill Lynch, Morgan Stanley, State Street and Bank of New York Mellon Corporation.  The Treasury Department is also expected to make the remaining $125 billion available to banks and thrifts across the country to purchase their preferred shares.

According to Treasury Secretary Henry Paulson, “Today’s actions are not what we ever wanted to do, but are what we must do to restore confidence to our financial system.  The needs of the economy require that our financial institutions not take this new capital to hoard it, but to deploy it.”  Just weeks before the presidential election, outgoing President George W. Bush sees the move as a short-term measure.  “The government’s role will be limited and temporary.  These measures are not intended to take over the free market, but to preserve it,” Bush said.

The question now is whether the banks will use the capital as the government intends – lend it to businesses and consumers again – or will they use it to sweeten their own balance sheets?  The government, no doubt, intends to exert significant pressure on the institutions to loosen credit so that people can start buying big-ticket items like houses and cars again.