Monday, August 31, 2009

TARP Loans Turning a Profit?


As Congress debated the [TARP] bailout bill last September that would authorize the Treasury Department to spend up to $700 billion to stem the financial crisis, Representative Mac Thornberry, Republican of Texas, said: “Seven hundred billion dollars of taxpayer money should not be used as a hopeful experiment.”

So far, that experiment is more than paying off. The government has taken profits of about $1.4 billion on its investment in Goldman Sachs, $1.3 billion on Morgan Stanley and $414 million on American Express. The five other banks that repaid the government — Northern Trust, Bank of New York Mellon, State Street, U.S. Bancorp and BB&T — each brought in $100 million to $334 million in profit.

The figure does not include the roughly $35 million the government has earned from 14 smaller banks that have paid back their loans. The government bought shares in these and many other financial companies last fall, when sinking confidence among investors pushed down many bank stocks to just a few dollars a share. As the banks strengthened and became profitable, the government authorized them to pay back the preferred stock, which had been paying quarterly dividends since October.

But the real profit came as banks were permitted to buy back the so-called warrants, whose low fixed price provided a windfall for the government as the shares of the companies soared.

Despite the early proceeds from the bailout program, a debate remains over whether the government could have done even better with its bank investments.

If private investors had taken a stake in the banks last October on par with the government’s, they would have had profits three times as large — about $12 billion, or 44 percent if tallied on an annual basis, according to Linus Wilson, a finance professor at the University of Louisiana at Lafayette, who analyzed the data for The Times.
And Yglesias:
Two things happen in a panic. One is that huge profit opportunities arise for anyone who has a giant pool of cash or the ability to raise it. The other is that thanks to the “flight to quality” it’s suddenly very easy for the government to raise cash. Hence, profit. Which isn’t to say that we’ll see a profit overall, lots of opportunities for losses still exist...
Still, the early returns are looking good.

If this keeps up, what will Utah County Wingnuts run on?

1 comment:

  1. Of course, this accounting does not include the money spent propping up AIG, which allowed Goldman to pay back its TARP money, or all of the guarantees which will likely never be repaid. Still, even if the banks' motivations is to get Uncle Sam off their back so that they can give huge bonuses again, I don't really care, just give me back my money.