Posted on 10/17/2018 2:09:24 PM PDT by bananaman22
Bank TARP was profitable. Easily $40 billion. No taxpayer pain there. I can't think of any taxpayer pain caused by the short-term Fed loans. Can you?
I think in the Swedish example the state took over the bank, improved its balance sheet, then sold it back to the private sector earning a few books for their taxpayers.
Usually when the government does that, it costs money. Look at the S&L bailout in the late 80s.
Do you have any links to Sweden making money on their bank takeovers?
Iceland's bubble was fueled by foreign deposits. Politically, it is easier to screw foreign depositors rather than domestic ones. As long as you can survive the next few years without foreign investment.
It’s their action for the next 5 years or so that I described that were both incredibly expensive and ineffective.
How were their actions expensive?
This should be an article on the Swedish bank that I had in mind; I dunno for sure because I’ve exceeded my free articles over at the NYTimes for this month, and screw them....
I tend to agree with jdsteel’s take in post #40 but I don’t know if I can defend it. I may have to pass the baton to him.
We spent $245 billion on bank TARP, and made $30 billion.
$4 Trillion added to their balance sheet isn’t expensive enough for you?
You know the taxpayers didn't pay to increase the size of the balance sheet, right?
So what made it expensive?
So that’s $30 billion above costs, meaning that we made a profit on the exercise whereas the Swedes recouped less than costs- am I reading it right?
Yes, just for the bank portion.
whereas the Swedes recouped less than costs- am I reading it right?
Yes, I read that as the Swedes lost money and had a bigger increase in unemployment and a longer decline in GDP.
“$4 Trillion added to their balance sheet isn’t expensive enough for you?”
IIRC the vast majority of bonds and debt on the Fed’s balance sheet are essentially owned by the US Treasury. The Fed only gets to retain enough income to pay for their overhead. Any and all interest payments above basic expenses accrue to the Treasury.
The Fed’s bond holdings are for money management, adjusting the amount of loanable funds in the banking system. In the case of TARP the Fed took non-performing mortgage paper off of the books of banks in exchange for cash. If they hadn’t done that, a lot of banks would have been like the Walking Dead. Technically bankrupt and unable to make any new loans.
The $4 trillion would have been money created by banks during the bubble, not something new that the Fed was inventing after the collapse. Being “troubled assets” this would have been non-performing paper, which would have evaporated and gone to money heaven and I suspect having a major deflationary impact. At least that’s the way I understand it. Fed watching is just a hobby for me, Toddster I believe is a professional trader who had to know how this stuff works as part of his job.
Coming out ahead is a plus for Bernanke’s program.
There is criticism that you often see along the lines that the bailout made the financial community whole while borrowers were wiped out. I suppose that could be seen as the pain being transferred to the public while letting the lenders-as-culprits off of the hook. Any opinion of that critique?
They wanted to flood the system with reserves. They hoped it would stimulate lending, but then they kept piling additional restrictions on the banks, to make lending more difficult.
Like stepping on the gas and brake at the same time and whining that the car isn't moving.
In the case of TARP the Fed took non-performing mortgage paper off of the books of banks in exchange for cash.
Two errors there. First, TARP was the Treasury, not the Fed, buying preferred stock (and getting warrants for free) in the banks to increase the capital of the banks. Second, the Fed's QE was buying performing, guaranteed mortgages, from Fannie and Freddie, not garbage held by the banks, and US Treasuries too.
The banks had to eat their garbage, the Fed didn't touch it.
The Fed only gets to retain enough income to pay for their overhead. Any and all interest payments above basic expenses accrue to the Treasury.
Correct. That's why I don't see QE as pain being transferred to the taxpayer, the Treasury collected hundreds of billions of dollars in interest on the $4 trillion in Treasuries and MBS. That is, taxpayer dollars didn't get spent because of QE, taxpayer dollars were saved.
The financial community wasn't "made whole". They got capital, fairly expensive capital, repaid it, shareholders saw their ownership diluted, and the banks lost trillions. There were no handouts.
More borrowers would have lost even more if the banking system had collapsed.
I suppose that could be seen as the pain being transferred to the public while letting the lenders-as-culprits off of the hook.
Again, the public didn't lose taxpayer dollars on the bailout. And the lenders lost trillions.
“More borrowers would have lost even more if the banking system had collapsed.”
And that’s the aspect that the public rarely knows about. Those who do hear of it likely think it would be no worse than if Sears or some other business went belly up.
But when banks fail they take down other industries with them. The Great Depression was a collapse of the American banking system. 30% of American banks failed, 30% of the American money supply simply vanished.
A replay of this is what scared Bernanke and the Fed into doing whatever they could to prevent a cascading systemic collapse.
An interesting aspect of that Freddie and Fannie paper is that most, if not all of it, was conforming loan paper.
Large, seasoned down payments, traditional loan to income ratios. All of the conservative lending standards that the private sector had been busily tossing to the wind. Conforming paper performed best in the collapse, just as it was intended to do. Fannie and Freddie had problems, but crap paper really wasn’t part of it.
“Like stepping on the gas and brake at the same time and whining that the car isn’t moving.”
I know someone here who had firsthand experience with that problem.
The money didn’t come from tax receipts just as our national debt doesn’t come from tax receipts. That doesn’t make either free or without consequence. It was and still is the largest monetary experiment in human history and they aren’t sure just how they are going to unwind it.
In part, due to the horrible “mark to market” rule that was true. But the Fed didn’t stop there and TARP didn’t cost $4 Trillion. Remember Quantitative Easing (parts 1 & 2) and Operation Twist?
The Fed ended up making a profit from their Mortgage Backed Securities. The Recession didn’t end until the idiots in Washington finally repealed “Mark to Market”.
And it didn't involve borrowing money either. Our national debt does.
That doesn’t make either free or without consequence.
Never said it was without consequence, or even free, still don't see what you meant by expensive.
It was and still is the largest monetary experiment in human history
Without a doubt.
and they aren’t sure just how they are going to unwind it.
Slowly.
Already down about $294 billion over the last 12 months.
National debt was created by borrowing money. The Fed balance sheet was created out of thin air. Both come at a cost and with great risk. If that’s not expensive you are stuck on semantics.
And yes, the plan is to unwind it slowly. And who knows, maybe it’ll actually work out. I hope for them and especially for us that nothing goes wrong.
With regards to the balance sheet, what costs do you see? What risks?
The risks are outlined in these articles:
https://www.hoover.org/research/risks-fed-balance-sheet-unconstrained-monetary-policy
Read the pdf hyperlink in the second article. The author and I both agree that risks of inflation and the political manipulation of the Fed balance sheet are significant risks.
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