Posts Tagged ‘Term Asset-Backed Securities Loan Facility’

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.

Federal Reserve Comes Clean on Who Received Bailout Money

Thursday, January 27th, 2011

Federal Reserve Comes Clean on Who Received Bailout MoneyAt the instruction of Congress, the Federal Reserve has released the names of the approximately 21,000 recipients of $3.3 trillion in aid provided during the financial meltdown –without doubt the nation’s worst economic crisis since the Great Depression.  Not surprisingly, two of the top beneficiaries were Bank of America and Wells Fargo, who received approximately $45 billion each from the Term Auction Facility.  American units of the Swiss bank UBS, the French bank Societe Generale and German bank Dresdner Bank AG also received financial assistance.  The Fed posted the information on its website in compliance with a provision of the Dodd-Frank bill that imposed strict new financial regulations on Wall Street.

One of the biggest surprises on the list is the fact that General Electric accessed a Fed program no fewer than 12 times for a total of $16 billion.  Although the Fed originally objected, Congress demanded accountability because there was evidence that the central bank had gone beyond their usual role of supporting banks.  In addition, the Fed purchased short-term IOUs from corporations, risky assets from Bear Stearns and more than $1 trillion in housing debt.

Reactions to the revelations are both positive and negative.  On the positive side, Richmond Fed President Jeffrey Lacker said “We owe an accounting to the American people of who we have lent money to.  It is a good step toward broader transparency.”  Sarah Binder, a senior fellow with the Brookings Institution, disagrees, noting that “These disclosures come at a politically opportune time for the Fed.  Just when Chairman Bernanke is trying to defend the Fed from Republican critics of its asset purchases, the Fed’s wounds from the financial crisis are reopened.”

Senator Bernard Sanders (I-VT) said “We see this (list) not as the end of a process but really a significant step forward in opening the veil of secrecy that exists in one of the most powerful agencies in government.  Given the size of these commitments, it is incomprehensible that the American people have not received specific details about them.”