Posts Tagged ‘Main Street’

Treasury Makes $25 Billion in Successful MBS Sale

Wednesday, April 4th, 2012

The Treasury Department just raked in a cool $25 billion for the American taxpayer. It sold the agency-backed mortgage-backed securities (MBS) that it bought during the financial crisis.  “The successful sale of these securities marks another important milestone in the wind-down of the government’s emergency financial crisis response efforts,” said Mary Miller, Treasury assistant secretary for financial markets.  The Treasury’s mortgage purchases were one part of the government’s support for banks and the financial markets.  The associated takeover of Fannie Mae and Freddie Mac cost another $151 billion.

Treasury bought the mortgage debt in an attempt to stabilize the housing industry, with funds approved by the Housing and Recovery Act of 2008.  Critics claim that it did more to prop up Wall Street than Main Street.  Anti-bailout anger fueled both the conservative Tea Party movement and Occupy Wall Street on the left.  Treasury Secretary Timothy Geithner argues that the government’s action helped prevent a deeper economic downturn.  TARP funds enabled the government to purchase preferred stock in banks, other financial firms and some automakers in return for the public investment.  Some of the preferred stock ultimately was converted to common stock.  According to a Treasury official, to date $331 billion has been repaid, including dividends and interest earned on the preferred shares.  While TARP currently is $83 billion in debt, Treasury projects losses will eventually number about $68 billion.  The nonpartisan Congressional Budget Office forecasts a lower loss of just $34 billion.

The Obama administration has stressed the TARP bank program’s performance, which has returned about $259 billion, more than the $245 billion lenders received.  At present. there are 361 banks remaining in TARP.

In all, Treasury bought $225 billion worth of mortgage-backed securities during the depths of the financial crisis between October of 2008 and December of 2009.  Some of those securities were backing loans believed to be worthless, according to some financial analysts at the time.  Treasury’s portfolio, however, was comprised mostly of 30-year fixed-rate mortgage-backed securities and were guaranteed by Fannie Mae or Freddie Mac, enhancing their value.  Congress authorized $700 billion for TARP, but Treasury only paid out $414 billion.  Of that, $331 billion has been paid back, including profits, interest and dividends made from investments.

Writing for The Hill, Peter Schroeder notes that “Now, with markets surging and the financial crisis in the rearview mirror — and with the presidential campaign rapidly approaching — the government is backing away from its outsized presence in the markets.  The move marks the latest in a series of steps by the government to exit its crisis-driven investments.  In July, the Treasury announced it was no longer invested in Chrysler, ending with a roughly $1.3 billion loss.  However, the government has fared better with investments in the banking sector.  The Treasury announced roughly one year ago that it had officially turned a profit on that portion of the bailout, and ultimately estimates it will turn a $20 billion profit on the $245 billion that was pumped into banks.”

All industry analysts are not as optimistic. Economist Douglas Lee, of the advisory firm Economics from Washington, said it is inevitable that the government will end up with “substantial losses” on the bailout, but that it was appropriate to try to reap gains where possible.  “A lot of these assets that were acquired were distressed at the time that they were bought so the chance of coming out ahead in selected areas is quite good,” Lee said.  For the long term, however, the effort to rebuild a reliable housing finance system means that costs for subsidizing operations of firms like Fannie Mae and Freddie Mac will continue to be expensive.  Investments in insurer AIG and in automakers might prove hard to recoup 100 percent.  Recently, Treasury said it was selling 206.9 million shares of AIG, which would reduce the government’s stake in the company to 70 percent from 77 percent.  “You have to say that these programs have worked in the sense that it’s restored a sense of stability that we sought,” Lee said, “but now it is right to have the government back out and let the private sector get on with their job.”

TARP: Money Well Spent

Wednesday, March 23rd, 2011

A top Treasury official defended the federal government’s $700 billion bank bailout financial crisis-response program at a hearing where the effort was criticized by members of a watchdog panel insisting that it did more for Wall Street than Main Street. “The cost of TARP is likely to be no greater than the amount spent on the program’s housing initiatives,” said Timothy Massad, acting assistant secretary of the Treasury for the Office of Financial Stability, to the Congressional Oversight Panel that oversees the Troubled Asset Relief Program (TARP).  “The remainder of the programs under TARP — the investments in banks, credit markets and the auto industry — likely will result in very little or no cost,” he said.

Panel member J. Mark McWatters, a Dallas-based CPA ad tax attorney, argued that it is difficult to call TARP a success when the unemployment rate is still approximately nine percent and millions of Americans are fighting foreclosure.  Panel Chairman Ted Kaufman – who was Vice President Joe Biden’s chief of staff of 19 years and temporarily replaced him in the Senate – said that Wall Street bankers ended up in better shape than Main Street.  “It’s not a tough economy on Wall Street, it’s a tough economy everywhere else,” Kaufman said.

According to Massad, TARP will end up spending no more than $475 billion; 86 percent of which has been disbursed.  To date, Treasury has received $277 billion back, including $241 billion in repayments and $36 billion in additional income. The Treasury expects to receive an additional $9 billion, which will leave $150 billion outstanding through various investments.  The department hopes to recover those funds over the next several years.  “TARP helped bring our financial system back from the brink and paved the way for an economic recovery,” Massad said.  “Banks are better capitalized, and the weakest parts of the financial system no longer exist.  The credit markets on which small businesses and consumers depend — for auto loans, for credit cards and other financing — have reopened.  Businesses can raise capital, and mortgage rates are at historic lows.  We have helped bring stability to the financial system and the economy at a fraction of the expected costs.”

William Nelson, deputy director of the Federal Reserve’s division of monetary affairs, agrees with Massad. In testimony about the Fed’s program to restart the asset-backed securities markets with backing from the Treasury’s TARP program, Nelson said even that program is unlikely to experience any losses.  “The Term Asset-Backed Securities Loan Facility (TALF) program helped restart the ABS markets at a crucial time, supporting the availability of credit to millions of American households and businesses,” Nelson said, adding that of the more than 2,000 loans worth $70 billion that were extended through the Fed’s facility, 1,400 totaling $49 billion were repaid early.  Remaining loans are current, and the collateral backing the loans is retaining its value, “significantly reducing the likelihood of borrower default.”

“As a result, we see it as highly likely that the accumulated interest will be sufficient to cover any loan losses that may occur without recourse to the dedicated TARP funds,” Nelson said.  Europe, by contrast, did not act as aggressively to apply stimulus with the result that financial crises occurred in countries like Ireland and Greece.

Will the Stock Market Recovery Continue in 2011?

Tuesday, January 11th, 2011

Will the Stock Market Recovery Continue in 2011?  With the stock market ending its best December since 1987, there is hope that 2011 will see a strong Wall Street recovery.  One source of hope is the fact that the Standard & Poor’s 500 Index has returned to its pre-Lehman Brothers level.  It joins the Dow Jones Industrial Average, the Nasdaq Composite Index and the Russell 2000 in seeing strong improvements in their levels.  Stocks have risen 20 percent in just four months.

The recent surge was helped by performance chasing.  The proportion of money managers lagging their benchmarks by five percent has increased from 12 percent at the end of October to 22 percent in the middle of December and trimming their risk exposure “on the presumption that the markets had reached the upper end of a trading range,” said JPMorgan’s Thomas Lee.  BTIG’s Mike O’Rourke, chief market strategist, believes the purchase of hard assets as a hedge against depreciating currencies has helped drive the price of oil to above $90 per barrel.  He also points to high silver and copper prices – with the latter at an all-time high.  “There is no doubt commodities have performed well even though the dollar has not broken down, but the question is how long will it take before speculators bail on the trade,” O’Rourke said.

Wall Street market strategists are consistently bullish, generally forecasting 2011 gains of 10 to 17 percent, with Deutsche Bank forecasting gains of as much as 25 percent Main Street investors are equally upbeat: Recent polls indicate the greatest level of optimism since 2007, with the bullish crowd surging to 63 percent of those queried, with just 16 percent claiming bearishness.

Successful TARP Extended Through Most of 2010

Monday, February 22nd, 2010

Geithner extends TARP program through most of next year.  An independent audit released by the bipartisan Congressional Oversight Panel (COP) has found the $700 billion Troubled Asset Relief Program (TARP) to be effective, so much so that the Department of the Treasury has extended it to October 3, 2010.  Treasury Secretary Timothy Geithner plans to use the remaining funds to assist families facing foreclosure and give loans to small businesses.

The COP was unable to fully gauge TARP’s impact because of other forces such as the $787 billion American Recovery and Reinvestment Act, tax cuts and actions by the Federal Reserve and Federal Deposit Insurance Company.  “Even so, there is broad consensus that the TARP was an important part of a broader government strategy that stabilized the U.S. financial system by renewing the flow of credit and averting a more acute crisis,” according to the report.  “Although the government’s response to the crisis was at first haphazard and uncertain, it eventually proved decisive enough to stop the panic and restore market confidence.”

That said, after 14 months of TARP, the panel admits that problems remain.  Banks are still skittish about making loans, toxic mortgage-related assets are still sullying banks’ balance sheets and smaller banks are susceptible to difficulties in the commercial real estate sector.  And, with 13 million additional home foreclosures expected over the next five years, “TARP’s foreclosure mitigation programs have not yet achieved the scope, scale and permanence necessary to address the crisis.”

Repayments from banks that received TARP dollars are expected to total $116 billion, including $45 billion that is being returned by Bank of America.  The government is likely to receive as much as $175 billion in repayments from companies it rescued by the end of 2010.

$700 Billion Financial Bailout Plan Still Evolving: Part 2

Monday, November 24th, 2008

Paulson’s TARP (Troubled Assets Relief Program) turnaround – he originally dismissed the bailout package as a recipe for “failure” -may demonstrate that his revised response is a gesture to public opinion.  At present, the bailout also seems geared more to help Main Street than Wall Street, a strategy that will play well with the general population.  Approximately half of the bailout money has been spent on emergency investments in banks and other institutions with the purpose of reviving the regular lending and borrowing that is vital to the nation’s economic health. According to Alan Ruskin, chief international strategist at RBS Global Banking and Markets, “This hasn’t done the Treasury’s credit a world of good.  Basically, they found that the market would applaud direct capital injections more easily than understanding the complexities of reverse auctions to buy more assets, so it’s a pragmatic choice.”

Who’s right?

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

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

$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