The TARP TRAP – Banks Want to Return TARP Money

CNN writes Bankers: Take your TARP money back:

There’s a growing sense among some bankers that Troubled Asset Relief Program known as “TARP” has become toxic. As a result, they want to bail out of the bank bailout program.

“It should be called ‘TRAP,’ not TARP,” said Brian Garrett, chief executive of Bank of the Bay in San Francisco, who is trying to return bailout funding. “Giving it back is harder than getting it.”

Garrett and other bank executives complain the Treasury’s program to stabilize banks during these turbulent times is actually weighing down their potential for growth.

They’re especially concerned the limits on executive compensation – imposed in February, four months after Treasury starting sending out checks – could make it difficult to hold on to star talent who may jump to financial institutions that are not receiving any Government assistance.

That concern is now magnified after the public whipping insurance giant AIG received for granting executive bonuses. No one wants to be the next AIG (AIG, Fortune 500).

“Things have changed since TARP was announced. The rules have changed,” said Michael McMullan, CEO of the Bank of Florida, who withdrew his application for TARP funds Thursday. “We’re going to need to attract and retain key revenue drivers and great bankers.”

“The more restrictions that we are placed under from the Government, the less value we can deliver to our shareholders in the long run,” said McMullan.

Iberiabank in Louisiana, California’s Bank of Marin, and TCF Financial in Minnesota confirm to CNN Money that they are asking Treasury to take back their TARP funds.

“What these bank managers are saying is – listen, I want the Government out of my backyard, and I just want to give back the TARP, and I want to run my company by myself,” said Paul Miller, Financial Services Analyst at FBR Capital.

TARP is a miserable failure in every regard. The fact that banks are now trying to return money and the Treasury won’t let them is just another perverted outcome of a misguided, panic-driven, and irresponsible policy.

Please consider what I wrote back in mid February:

Most of these banks are now sitting on liabilities that pay out a fixed 5% annually without being able to pass the money on at a premium. Expect them to either buy back those shares (if they can) or at least not to accept any more government money from hereon out.

Whenever a government embarks upon a big project whose scope goes beyond the task of protecting the individuals’ life, health, or property, it is a safe bet that the project will be a disaster, that it will have unintended consequences, and that it will aggravate the situation it was supposed to cure.

These two quotes must be getting old at this point, but I will keep using them where appropriate until everybody gets it once and for all and acts accordingly:

Ayn Rand wrote in Atlas Shrugged in 1957:

“Politicians invariably respond to crises — that in most cases they themselves created — by spawning new government programs, laws and regulations. These, in turn, generate more havoc and poverty, which inspires the politicians to create more programs . . . and the downward spiral repeats itself until the productive sectors of the economy collapse under the collective weight of taxes and other burdens imposed in the name of fairness, equality and do-goodism.”

Ludwig von Mises wrote in his analysis Interventionism in 1940:

The various measures, by which interventionism tries to direct business, cannot achieve the aims its honest advocates are seeking by their application. Interventionist measures lead to conditions which, from the standpoint of those who recommend them, are actually less desirable than those they are designed to alleviate. They create unemployment, depression, monopoly, dis­tress. They may make a few people richer, but they make all others poorer and less satisfied. If governments do not give them up and return to the unhampered market economy, if they stubbornly persist in the attempt to compensate by further interventions for the short­comings of earlier interventions, they will find eventually that they have adopted socialism.

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AIG – Sinking Money in a Hole

It’s time for our dear politicians to act surprised again. It’s time for Congress again to complain about the results of false policies that they themselves recklessly approved, against all warnings. It’s time again for Ben Bernanke to fire off mindless blather, platitudes and predictions that will, as always and without exception, turn out to be abysmally false.

The AP has a shocking surprise for us, Taxpayers unlikely to be fully repaid in AIG mess:

As the cost of the rescue swells, experts says it’s becoming harder to envision a scenario in which the government could recoup its full investment. Even though the AIG payouts to major banks have angered critics of the bailout, it might be legally impossible to claw back any of the billions already doled out.

Of course the taxpayer won’t get any of this money back. Is there a living creature with more than one brain cell that seriously expected the taxpayer would ever see this money come back? Of course it will be legally impossible to get the billions handed out back in any way. Congress and the Fed shouldn’t have been so stupid to throw it at them in the first place.

The government agreed to uphold those contracts when it seized control of American International Group in September. It argued that failing to repay the debts of the globally interconnected company could cause catastrophic losses at big international banks, potentially toppling the financial system.

…and the problem with that is what exactly? Toppling the financial systen? Does that mean the people who were instrumental to the credit expansion and the ensuing credit crisis would have gone out of business and we wouldn’t have to deal with their incompetence, greed, irresponsibility, and arrogance? Great! Anyone who has a problem with that should speak out and explain precisely why that would be such a terrible thing to happen. Especially he should explain why it is, on the flip side, good when instead the taxpayer who earned money with honest and productive work is milked to the Nth degree and driven into bankruptcy.

Scrutiny of AIG’s dealings with its trading partners comes after revelations over the weekend that the insurer planned to pay out tens of millions in executive bonuses. President Barack Obama on Monday accused AIG of “recklessness and greed.” He pledged to try to block the bonuses, which AIG insisted it’s contractually obligated to pay.

Mr. Obama, how about we pursue a policy of change? How about we no longer announce that we will react when the damage is already done. How about we proactively prevent disasters from happening? How about we listen to the people who advised us not to put the taxpayer on the hook for $170 billion for an organization whose market value is $2 billion? How about we realize that there is a reason why these organizations are not performing, why they are on the brink of bankruptcy? It is because they pursue the profession of wasting money. When we subsidize this behavior, we will get more of it. How much longer do we want to subsidize this bahavior?

Later, White House spokesman Robert Gibbs said the administration would modify the terms of a pending $30 billion bailout installment for AIG to at least recoup the $165 million the bonuses represent. That wouldn’t rescind the bonuses, just require AIG to account for them differently.

How retarded is this government? We hear from our President how outraged he is and at the same time his press secretary calmly announces that $165 million need to be accounted for in a slightly different manner, and then we’ll give them another $30 billion. Disgusting.

Asked if he’d favor trying to see if those AIG contracts could be broken so the government could recover some of those payouts, Rep. Barney Frank, chairman of the House Financial Services Committee, stopped short of endorsing the idea. But he said “that’s something that has to be examined.”

“I would want to know the consequences of not paying those debts,” Frank, D-Mass., told The Associated Press.

There is definitely something that needs to be examined. And that is Rep. Barney Frank’s head. This guy has been wrong on every single thing he said. He has been the strongest supporter of all bailouts and spending boondoggles that were brought before Congress. His dishonesty and hippocrisy are astounding.

Federal Reserve Chairman Ben Bernanke, defending the $30 billion lifeline the government provided to AIG, said earlier this month that the government may eventually be able to “recover most or all” of the taxpayers’ investments.

*Yawn* *Sigh* No, Mr. Bernanke. The government will not be able to recover any of the taxpayers’ investments. You know that or you are the biggest idiot to ever head the Federal Reserve. Your statement is wrong, just as all your previous statements have been. Please, do us all a favor and shut the hell up.

Some words of wisdom in closing:

But Mark Williams, a former Fed examiner and finance professor at Boston University, said the AIG wind-down inevitably will cost taxpayers money. And he thinks it will take much more money — perhaps an additional $200 billion — to finish winding down AIG’s financial dealings so its core businesses can be sold off.

“No longer can we call it an investment,” he said. “We just have to call it what it is — and that’s sinking money in a hole.”

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Lending Can’t be Forced

Moneymorning writes As Big Banks are Criticized for not Lending, Small Banks Find They Can’t Lend:

While congressional leaders this week excoriated the leaders of banks that have received billions of dollars in government bailout money for not doing enough to end the credit crisis, it may actually be consumer fear of borrowing that’s blunting banks’ efforts to lend.

Chief executives of eight big U.S. banks that have received the taxpayer-provided rescue money were in Washington this week to testify before Congress told U.S. lawmakers that their institutions have lent out more than $400 billion. Skeptical congressional leaders excoriated the executives for not doing enough to end the credit freeze that’s blunting consumer confidence and threatening to plunge the U.S. economy into an even deeper recession.

But the U.S. consumer may now be the real culprit. Banks want to make loans. The problem is that fear-frozen consumers just aren’t biting, said Curtis Hage, CEO of closely held Home Federal Bank of Sioux Falls, S.D., which received $25 million worth of federal bailout money via the Troubled Assets Relief Program.

If there was a greater demand out there for loans, we’d be out there after them like a dog after a bone,” said Hage.

The upshot: Big banks are under the congressional microscope, even though the appetite for loans among many typical American consumers seems to have dried up.  Small bankers around the country are finding that, for now, many customers are sitting tight.

Congressional leaders didn’t want to hear that as they grilled the CEOs of big U.S. banks earlier this week.

“There is a great deal of anger about the financial institutions here,” House Financial Services Committee Chairman Barney Frank, D-Mass, told the CEOs. “There is anger about us, and there is anger about the executive branch. If you want to give the money back, we’ll take it.”

TARP was designed to thaw frozen credit markets, then-Treasury Secretary Henry Paulson told Congress on Nov. 24. But lending nationwide actually slowed after the Treasury Department began giving 389 banks $236 billion in TARP money on Oct. 28.

Outstanding loans and credits at commercial banks fell to $7.057 trillion in the week ending Jan. 28 from $7.266 trillion in October, according to the Federal Reserve.
The CEO’s of the big banks that received the first allocation of $125 billion of TARP funds were put on the hot seat yesterday (Thursday) as Congress demanded to know exactly what they had done with the government money, MarketWatch reported.

But they defended their actions, saying they had actually increased lending, largely because of funds they had received from the bailout program. In fact, two bank chiefs said they lent out even more money than they received from TARP.

We are actively putting our capital to work,” said Goldman Sachs (GS) CEO Lloyd C. Blankfein.

  • Wells Fargo & Co. (WFC) CEO John G. Stumpf said that his bank made $72 billion in new loans in the fourth quarter, adding that the loans were almost three times what the bank received in bailout funds.
  • Bank of America Corp. (BAC) CEO Kenneth D. Lewis said the bank lent roughly $127 billion in the fourth quarter. More than half that money was doled out to commercial real estate and businesses.
  • Citigroup Inc. (C) CEO Vikram S. Pandit said that the bank provided more than $75 billion in new loans to consumers and businesses in the fourth quarter.

But some question whether enough lending is taking place. Based on a 1 to 10 lending ratio, critics argue that these banks should be lending $1.3 trillion based on the $125 billion allocated to them.

House members reiterated their concerns about how banks are using the government money and raised questions about whether banks have been using the capital injections for making acquisitions instead of lending.

In fact, Money Morning was one of the first news organizations to really examine how TARP money was being misdirected, and wasn’t being deployed as originally intended.  As our ongoing investigation has demonstrated, billions in U.S. bank rescue funds are financing buyouts worldwide – instead of lending at home. Some of those buyouts deals are being done in markets as far away as China, even as banks outright refused to discuss the matter.

For its part, the Obama administration will mandate that any TARP funds it releases to banks will be directed specifically for lending, Treasury Secretary Timothy Geithner said on Tuesday  (Feb. 10).

But by essentially targeting Wall Street banks, Congress may be missing out on what’s really happening – or not happening – out on Main Street.

C.R. “Rusty” Cloutier of MidSouth Bank in Lafayette, La., wants to do his part for the economy by lending locally for cars, homes, and small businesses – if only he could get his customers to cooperate.

After his bank received a $20 million cash infusion from TARP on Jan. 9 he went on the road to 14 “town hall” meetings, hoping to entice borrowing by consumers in its business market.

What we want to do is make people aware we have $250 million to lend,” Cloutier said.  But, at one meeting, the 20 or so customers in the audience were outnumbered by bank employees handing out cookies and bottled water. Not one person asked for an application.

While he has attracted a few fresh borrowers, people are “very, very nervous” about taking on significant new debt, the 61-year-old banker said. “Credit hasn’t tightened, but the ability to find creditworthy borrowers has tightened.”

Some MidSouth officials wonder if the bank did the right thing in accepting TARP assistance, said Will G. Charbonnet Sr., MidSouth’s chairman.

The $20 million was in exchange for 20,000 preferred MidSouth shares, which the Treasury Department bought for $1,000 each, according to the bank. MidSouth pays a 5% annual dividend. In addition, the Treasury received 208,768 warrants for common shares, according to Bloomberg.

I wrote about this a while ago in Where Has All the Money Gone. A few more people seem to be understanding it now. Count out Congress, whose members are ranting and shouting day in and day out about the lack of credit, tightness of credit, and stingy banks.

People are sick and tired of borrowing, spending, and debt. They want to save up money and/or consolidate debt which they have failed to do for the longest time.

Most of these banks are now sitting on liabilities that pay out a fixed 5% annually without being able to pass the money on at a premium. Expect them to either buy back those shares (if they can) or at least not to accept any more government money from hereon out.

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TARP Overpaid $78 Billion for Bank Assets

Moneymorning writes Watchdog Agency Says TARP Overpaid $78 Billion for Bank Assets:

The watchdog agency overseeing the Troubled Asset Relief Program (TARP) said Friday that the Treasury Department paid banks $78 billion more for assets than they were worth.

The Congressional Oversight Panel said the Treasury dispersed $254 billion for capital purchases of bank assets worth about $176 billion under the TARP program.

“The loss estimate is conservative,” said House Financial Services Committee member Rep. Alan Grayson, (F-Fla.). “It could turn out that those assets in the end are worthless.”

The $700 billion TARP program has been under scrutiny since it began in October because of a general lack of understanding of how the program is being run and where the money is going.

The congressional report is the latest in a series of revelations about the taxpayer-provided bailout money. An ongoing investigation by Money Morning has detailed how banks have used the first $350 billion: They’ve used the capital to finance investments in other banks and to pay bonuses to executives. Then they audaciously refused to say where the money went, or how it was used, Money Morning has shown.

The Congressional Oversight Committee detailed what the Treasury has spent so far in the TARP program.  In addition to the $194.2 billion spent on direct equity investments in banks, $40 billion funded a program to shore up American International Group, Inc. (AIG), $52.5 billion was set aside to stabilize Citigroup, Inc. (C) and Bank of America Corp. (BAC), and $20.8 billion was earmarked for Detroit automakers.

Neil Barofsky, TARP’s special inspector general, said in congressional testimony Thursday that he will ask companies to detail their planned use of the funds, including how they will comply with executive compensation rules. He will also ask the companies to document how the funds were used and to give the inspector general’s office accuracy certifications, Forbes reported.

“The most significant failing from a transparency standpoint: Understanding the process and criteria Treasury used to decide who would receive TARP funds and what the recipients have done with the hundreds of billions of dollars that have been invested,” Barofsky said.

The public’s stake in the nation’s banking system continues to mushroom as President Barack Obama’s team works to pull the economy out of the deepest recession in at least two generations. TARP, which is part of the $8.5 trillion the government has pledged to stabilize the economy, has guaranteed $350 billion to banks and the auto industry so far, with another $350 billion set to be allocated in coming months.

“Our money – and our economy – are on the line, and we all have a stake in the outcome,” Harvard Law School professor Elizabeth Warren told the Senate Banking Committee. Warren heads the five-member congressional oversight panel overseeing TARP.

So far, TARP hasn’t succeeded in clearing bad assets from banks’ balance sheets, which would allow the companies to lend money and get the economy going again, Gregory Miller, chief economist at Sun Trust Banks Inc. (STI), told Bloomberg News.

“It hasn’t cleaned up the asset side of bank balance sheets and it hasn’t helped bank uncertainty about bank balance sheets at all,” Miller said. “Uncertainty has now overwhelmed economic decision making.”

The lack of transparency has put TARP administrators on the defensive.  Neel Kashkari, appointed by the Bush administration to run TARP, on Dec. 5 told the Mortgage Bankers Association that the government isn’t “looking for a return tomorrow.”

“We are looking to try to stabilize the financial system, get credit flowing again, and over time, we believe that the taxpayers will be protected and have a return on their investment,” he said.

Indeed, former Treasury Secretary Paulson, who was succeeded last month by Timothy Geithner, originally promoted TARP as a possible moneymaker.

“This is an investment, not an expenditure, and there is no reason to expect this program will cost taxpayers anything,” Paulson said Oct. 20.

On a sidenote: The losses will be much more than 78 Billion. These are very optimistic figures, the final numbers will be much worse. Most of these assets will turn out to be completely worthless.

My comment: Yes, TARP overpaid. The taxpayer got screwed. Paulson was wrong with what he said on October 20th. Every single argument advanced in favor of TARP was wrong. Everyone who supported it was wrong. As it always is when scare tactics are used, all warnings went unheeded. Should this be a surprise to anyone? Of course not. This was the whole point of the bill. To screw over the taxpayer. What else should one expect? As I pointed out again and again, the people who supported it have been wrong consistently. Every single thing they had said was wrong. Why would it be any different this time? And they will continue to be wrong. But it won’t matter.

It is the same old song, again and again. When our leaders tell us that disaster is impending, we tend to stop thinking and give in to false emotions. When Paulson told us that it needed to be done “quick and clean” or else a “delay would put the economy at risk“, he had no logical arguments to support his thesis. But that’s the whole point. If you have no arguments you need to scare people to have it your way.

A failure to act, and act now, will turn crisis into a catastrophe and guarantee a longer recession, a less robust recovery, and a more uncertain future…

Sound familiar? This is yet another successful attempt to cover up a lack of logic and reason, and to appeal to fear and use scare tactics. This time it’s not George Bush or Henry Paulson fulfilling this solemn duty. It is Barack Obama.

Welcome to “Change”!

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More Money Needed for Banks

Clueless House Speaker Nancy Pelosi says more money may be needed for banks:

Speaking on ABC’s “This Week,” Pelosi resisted the notion that the government would nationalize some banks, but when asked whether more funds would be needed above those already approved for the TARP, she said that “some increased investment” in return for equity might be necessary.
“Change has to happen in terms of what is done, what the transparency of it is, what the accountability of it is,” Pelosi said. “Only then would we be able to pass any additional funding.”
With banks reporting ever-increasing losses, Wall Street has been hoping for new plans to tackle the financial crisis from the newly arrived administration of President Barack Obama.
But some segments of the public, especially those who own financial stocks, fear that the government might seize ailing banks, getting rid of their bad assets and making a profit where possible but also wiping out their shareholders.

Whoever still owns bank shares has to be out of his mind. Dump that crap. The government will dilute your holdings and destroy your wealth. House Speaker Nancy Pelosi is the epitome of bureaucratic arrogance. She has absolutely no idea what she is talking about. Her unquestioning bailout policy will be instrumental to the destruction of the US economy.

TARP I hasn’t worked. And before even embarking upon TARP II, which will also not work of course, we are being prepped for yet more bank bailout money. I hope people will hold Pelosi and other enablers accountable once we see the inevitable consequences. Not a single thing she suggests will in the slightest fix our problems. It will perpetuate and aggravate them. My only wish is that people don’t pretend to be surprised once the painful collapse occurs.

Vice-President Joseph Biden said Sunday on CBS’s “Face the Nation” that Timothy Geihtner, who is expected to be confirmed Monday as Treasury Secretary, will first try to get more funding for TARP to help the banks.

Of course he will. It’s probably futile to point out that Geithner was making statements to the contrary just a few days ago:

Geithner also said Treasury had no current plans to request additional bailout money beyond the existing $700 billion already authorized, but said the situation was “dynamic” and required careful monitoring.

I have low expectations and hence do not expect anything else than more lies and deceit. Of course all these measures were and are bound to fail as already pointed time and again.

Unfortunately we have a fascinating propensity to keep listening to those people who have been, without a single exception, wrong on what they have been saying, again and again.

Everyone should pull out their money from US assets and put them into gold or silver. I still believe Silver has Bottomed out and reversed its trend. An interesting trend has emerged last week: The Dollar rose against the Euro and the Pound but at the same time gold and silver still went up in Dollar terms. This is a very strong sign of global delevaraging coupled with save haven investments. Since governments abroad are not acting any better, the current Dollar strength will likely continue for a little while. However, regardless of that, in absolute terms holding US Dollars in cash is a much bigger gamble than holding hard assets.

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