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Archive for the ‘TARP’ Category

Good thing we taxpayers have nothing else to spend our money on but propping up insolvent financial institutions and paying for homes people can’t afford.

US financial system support up $700 bln in past year-watchdog

  * Total US govt financial system support seen at $3.7 trln

* US support swells by $700 bln in past year-watchdog

* Mortgage, housing commitments account for most of rise

* TARP watchdog criticizes Obama housing rescue efforts

By David Lawder

WASHINGTON, July 21 (Reuters) – Increased housing commitments swelled U.S. taxpayers’ total support for the financial system by $700 billion in the past year to around $3.7 trillion, a government watchdog said on Wednesday.

The Special Inspector General for the Troubled Asset Relief Program said the increase was due largely to the government’s pledges to supply capital to Fannie Mae (FNMA.OB) and Freddie Mac (FMCC.OB) and to guarantee more mortgages to the support the housing market.

Increased guarantees for loans backed by the Federal Housing Administration, the Government National Mortgage Association and the Veterans administration increased the government’s commitments by $512.4 billion alone in the year to June 30, according to the report.

“Indeed, the current outstanding balance of overall Federal support for the nation’s financial system…has actually increased more than 23% over the past year, from approximately $3.0 trillion to $3.7 trillion — the equivalent of a fully deployed TARP program — largely without congressional action, even as the banking crisis has, by most measures, abated from its most acute phases,” the TARP inspector general, Neil Barofsky, wrote in the report.

The total includes Federal Reserve programs and a myriad of asset guarantees, including Federal Deposit Insurance Corp. protection for bank deposits.

The increased government commitments more than offset about a $300 billion decline in the U.S. Treasury’s TARP commitments in the past year as programs have closed and banks have repaid taxpayer funds.

HOUSING PROGRAMS CRITICIZED

Barofsky also in the report ramped up his criticism of the Treasury’s housing relief efforts, saying that its program to reduce monthly mortgage payments for struggling homeowners was showing “anemic” participation numbers and had failed to “put an appreciable dent in foreclosure filings.”

He said Treasury had refused his repeated recommendations to announce more effective goals and benchmarks for its mortgage modification program, which could reach up to $50 billion in TARP funds.

“Treasury’s refusal to provide meaningful goals for this important program is a fundamental failure of transparency and accountability that makes it far more difficult for the American people and their representatives in Congress to assess whether the program’s benefits are worth its very substantial cost,” Barofsky wrote.

Among other recommendations repeated in the report, Barofsky called for the Treasury to consider making its voluntary mortgage principal reduction program mandatory, saying this would make it less likely for “underwater” homeowners to abandon their properties.

The Treasury has declined to adopt the recommendation, citing the prospect that mandatory principal reduction would cause mortgage servicing firms to opt out of the program and fairness issues in reducing principal for both responsible homeowners hit by value declines and homeowners who overleveraged their properties in refinancings.

U.S. Treasury officials defended the Home Affordable Modification Program, saying that it was still on track to reach its goal to keep 3 million to 4 million homeowners in their homes by the end of 2012 and was adapting to changing conditions by offering forbearance to unemployed people and extra funding for the hardest-hit markets.

Herbert Allison, Treasury assistant secretary for financial stability, said the Treasury often agrees with Barofsky’s recommendations, “but once in a while, we differ on what type of policy will best carry out our mandate.”

The report provoked swift criticism of Obama administration housing policies from U.S. Rep. Darrell Issa, a California Republican who has taken every opportunity to blast the Treasury’s handling of financial bailout programs.

“The fact that the Obama administration is treating TARP like its own personal slush-fund is beyond egregious and a complete betrayal of what the American people were told would be then when their tax-dollars were used to bailout Wall Street,” Issa said in a statement, adding that the housing efforts were “dumping good money after bad”. (Reporting by David Lawder; Editing by Kazunori Takada)

Reuters

Six hundred small banks still hold $130 billion in unpaid TARP payments with taxpayers on the hook. Records show Over 90 Banks Miss their May TARP Payment.

Statistics, compiled by SNL Financial from U.S. Treasury data, showed 91 banks and thrifts skipped the May dividend payment under the Troubled Asset Relief Program, or TARP. It was the first missed payment for 23 of the banks; for the others, it was at least their second miss.

The number of banks missing their TARP payments rose for the third straight quarter. In February, 74 banks deferred their payments; 55 deferred last November. SNL Financial’s analysis found 20 banks have missed four or more payments since the program began in 2008, while eight banks have missed five payments.

While many of the largest U.S. banks easily repaid billions in TARP aid, more than 600 smaller banks still hold $130 billion from the program, created at the height of the financial crisis.

Most of the banks failing to make TARP payments are bankruptcy candidates.

Top 10 Sovereign Debt Default Risks

Inquiring minds might also be interested in a slideshow of Government Debt Issuers Most Likely to Default.

Minus the slide images here are the results.

1. Argentina – CPD: 50.14% – Mid Spread: 1081.14
2. Venezuela – CPD: 49.76% – Mid Spread: 1013.78
3. Ukraine – CPD: 44.12% – Mid Spread: 884.91
4. Pakistan – CPD: 42.17% – Mid Spread: 803.20
5. Dubai, UAE – CPD: 32.46% – Mid Spread: 572.92
6. Republic of Latvia – CPD: 29.13% – Mid Spread: 513.31
7. Iraq – CPD: 28.25% – Mid Spread: 475.97
8. Iceland – CPD: 27.03% – Mid Spread: 476.34
9. Greece – CPD: 24.92% – Mid Spread: 341.54
10. Dominican Republic – CPD: 23.37% – Mid Spread: 375.00

From the article: “The countries are ranked by their cumulative probability of default (CPD), which gives the market’s assessment of an issuer’s likelihood of default over the life of a CDS contract.”

Those numbers are from March as ranked by CMA. Greece is certainly higher now.

New “Merle Hazard” Song – “Legal Tender”

“Legal Tender” is an original lyric by Merle Hazard and Tom Carroll, set to a classic public domain melody. The melody is from an 1861 song, “Aura Lee,” that was popular during the American Civil War. Elvis used the same melody in “Love Me Tender,” which was a hit in 1956.

Mike “Mish” Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List

By Karl Denninger

Wait.  I thought this was sold to We The Taxpayers as something we would MAKE money on.  HA!  Joke’s on us, I guess.  It’s just so nice that all ours and our children’s money is going to prop up insolvent banks that committed fraud.  Isn’t that special?  Whoever could have imagined we’d be robbed in broad daylight?

Latest TARP Price Tag: $109 Billion

By David Wessel

In the latest update of its cost estimates for Troubled Asset Relief Program, the $700-billion kitty Congress created in 2008 to bolster the banking system, the Congressional Budget Office says the ultimate cost to taxpayers — including investments, grants, and loans completed, outstanding, and anticipated — will be $109 billion.

Much of that stems from aid to American International Group (AIG) — about $36 billion — and the auto industry — about $34 billion. CBO estimates a very small net gain to the government from the Treasury’s purchase of more than $200 billion in shares of preferred stock from hundreds of financial institutions.

The Office of Management and Budget (OMB) estimates that the total cost of the TARP’s transactions will amount to $127 billion. OMB’s estimate is $18 billion higher than CBO’s estimate mainly because of different estimates in the cost of aid to AIG and in the amount expected to be spent by the Home Affordable Modification Program, which provides direct payments to mortgage servicers to help homeowners avoid foreclosure.

The Treasury secretary has the authority to purchase and hold up to $699 billion in assets at one time. CBO estimates that $344 billion of that authorized amount is outstanding or will be disbursed before the program expires on October 3, 2010, including $45 billion that is projected to be used for purposes not yet specified.

“Both CBO and OMB value the TARP’s investments by discounting to the present the projected cash flows stemming from each investment, using a discount rate that captures both the time value of money and the premium that a private investor would require as compensation for the risk of the investment or commitment. The resulting “net present value” is the cost or gain projected for the investment and represents an estimate of its market value,” CBO analyst Avi Lerner said in a post on the CBO blog.

CBO’s estimates on the cost of the pending health-care legislation may not be so cheery.

ANALYSIS-US Taxpayers Hit as TARP Takes a New Turn

* Taxpayers take roughly 80 pct loss on a TARP investment

* Deal shows new stage for bank rescue plan

* US Treasury often forced to pick among terrible options

 By Dan Wilchins and David Lawder

NEW YORK/WASHINGTON, March 3 (Reuters) – A small Midwestern bank has negotiated with the U.S. Treasury for taxpayers to essentially buy the bank’s shares at an above-market-value price, in an unusual transaction reflecting how the government’s bank investments are entering a new phase.

Midwest Banc Holdings Inc <MBHI.O> agreed to swap $84.8 million of preferred shares it sold to the U.S. government in 2008 for securities that will convert into about $15.5 million of common shares — roughly an 80 percent loss to taxpayers.

To some analysts, the transaction is an outrageous giveaway to an ailing bank, and its investors.

“There’s a lot of funny stuff going on here,” said James Ellman, president at hedge fund Seacliff Capital in San Francisco.

Others say it is a sign of the tough choices the Treasury faces dealing with banks that remain weak despite receiving government capital. In some cases, taxpayers must choose whether to lose 80 percent of their money, or all of it.

A Treasury official told Reuters that the deal is designed to help Midwest Banc Holdings raise private capital, which is the main goal of this phase of the Troubled Asset Relief Program (TARP).

The biggest banks repaid the money they owed the U.S. Treasury last year and earlier this year, and with a few exceptions, they did so easily.

But more than 600 smaller banks are still left in the program, and owe roughly $130 billion to taxpayers.

In the latest stage of TARP negotiations, many banks will struggle to repay that money. The government will be forced to negotiate separate deals with banks that could result in losses for taxpayers.

The Chicago area, where Midwest Banc Holdings is based, could have a large number of problem lenders.

A recent presentation by rival Chicago bank MB Financial Inc <MBFI.O> said there are 157 banks in the metro area with more than $100 million of assets, and 70 of them are by one measure experiencing real credit stress.

When banks applied for the Treasury capital, they had to be deemed “healthy” by their regulators to receive taxpayer funds. So far, the only outright loss the government has taken so far on the TARP Capital Purchase Program is a $2.3 billion loss on its investment in CIT Group, which went through a bankruptcy reorganization last year.

The Treasury has said it expects its bank capital injection program overall to earn a profit, helped by preferred stock dividends and warrant sales. But the overall TARP program is expected to lose about $117 billion, from companies like insurer American International Group Inc <AIG.N>.

Chris Robling, a spokesman for Midwest Banc, declined to comment.

SHARING THE GAINS

What irks some analysts is that the government may be giving up some potential gains on Midwest Banc’s stock. The Treasury could have traded its $85 million of preferreds for common stock now worth about $85 million.

That move would have given Midwest the same amount of capital, but the bank would have issued more shares to taxpayers at a lower price, giving taxpayer’s more profit if the company’s shares rise.

“Taxpayers should be allowed to share in the upside,” Seacliff’s Ellman said.

An analyst in New York said, “The government is giving away money here.”

But others argue that issuing fewer shares to the government may be necessary if the bank is looking to sell more common shares to private investors.

The government’s mistake was investing in the bank in the first place, and its best option is now to choose the outcome that minimizes losses, said Linus Wilson, a longtime critic of TARP at University of Louisiana at Lafayette.

“We weren’t in that good a bargaining position,” Wilson said, adding that the current market value of the government’s TARP preferred shares is about $8 million.

Midwest is not alone in having renegotiated its TARP obligations. Citigroup Inc <C.N> exchanged about $25 billion of the United State’s TARP preferred shares into common stock, and another $20 billion of TARP securities into trust preferreds.

Superior Bancorp <SUPR.O> and Popular Inc <BPOP.O> last year also exchanged trust preferreds for the government’s preferreds.

And GMAC Financial Services in December swapped some of the government’s TARP preferreds for mandatory convertibles.

Midwest Banc is giving securities known as mandatory convertibles to the U.S. government, in exchange for the preferreds it sold in December 2008 plus $4.5 million in unpaid dividends on that stock.

Those securities will automatically convert into about 47.1 million common shares in seven years. The bank can convert them sooner if it sells at least $125 million of new equity for cash, and meets a few other conditions. (Reporting by Dan Wilchins and David Lawder; Editing by Tim Dobbyn) ((Reuters Messaging: dan.wilchins.reuters.com@reuters.net; +1 646 223 6320)) Keywords: MIDWESTBANC/

TARP Stake In CIT Group Is Wiped Out

By MEENA THIRUVENGADAM

WASHINGTON—U.S. taxpayers’ $2.3 billion stake in CIT Group Inc. has officially been wiped out, according to a Treasury report released Wednesday.

The Treasury provided the commercial lender with funds from the Troubled Asset Relief Program, or TARP, in December 2008, but CIT Group still ended up undergoing a bankruptcy reorganization by the end of 2009.

Despite the CIT Group loss, which was expected, and other likely taxpayer losses, the Treasury expects the cost of TARP will continue to fall from the current level, of just under $120 billion. The Treasury is expecting its losses on financial-sector rescue efforts to largely stem from aid provided to domestic auto makers, American International Group Inc. and government sponsored enterprises Fannie Mae and Freddie Mac.

“If Congress joins the president in adopting a Financial Crisis Responsibility Fee, Americans will not have to pay one cent for TARP,” Treasury Secretary Timothy Geithner said in a statement Wednesday.

The Treasury expects to turn a profit on aid provided directly to the banking sector, and on Wednesday said that it had received a $7.6 billion TARP repayment from PNC Financial Services Group Inc. Including the PNC transaction, banks have repaid $173 billion in capital borrowed from the Treasury.

But, but, but…..I thought we (the taxpayers) were MAKING money on all these bailouts?!  More lies and more lies.