Treasury Gives Misleading Account of TARP Results

Both Obama and the Treasury Department keep talking up the TARP as if it is a money maker for taxpayers, when nothing could be further from the truth. Obama tried this stunt in his anniversary of Lehman speech, and the Treasury continues with the theme, of implying that results for the firms that paid back are representative of what the final results would be.

If this logic were generally true, that would mean subprime bonds were a good investment too. After all, most borrowers did make good on their mortgages. A late September Moodys mortgage survey that a reader sent me estimated that total losses on subprime RMBS will be about 26%, which means that 74% were money good.

The problem with the Treasury/Obama three card monte is that the strongest TARP are the ones that paid off first. Things can only go downhill from here. Do you expect AIG to repay the TARP in full? Or the auto companies?

But you’d never guess that if you took the latest propaganda at face value. From MarketWatch:

The Troubled Asset Relief Program has generated at least $16 billion in profit so far, the Treasury Department said late Wednesday…

Total repayments by TARP banks should top $175 billion by the end of 2010, cutting taxpayer exposure to the sector by three-quarters, the Treasury estimated.

TARP programs aimed at stabilizing the banking system will earn a profit from dividends, interest, early repayments, and the sale of warrants, it added. Bank investments of $245 billion in Treasury’s 2009 fiscal year were initially projected to cost $76 billion, but are now forecast to generate a profit.

Yves here. Did you catch that? This is too clever by half. They are now talking about TARP “bank only” results, which serves to omit the biggest turkeys.

Then we get this bit:

According to a recent Treasury report, 55 institutions that received TARP money are delinquent on dividends they owe the government, as of a Nov. 16 payment deadline.

Yves here. Admittedly, these are smaller banks. Nevertheless, we reported in October that just about no one noticed that 34 banks had missed their TARP dividends. Now we are up to 55. This is an impressive rate of decay.