Might I ask a question about the 2008 bank bailout money?

[LouAvul]

Emergency Economic Stabilization Act of 2008. Paulson drafted it and sent it to Bush, who immediately approved it and sent it to Congress. In Paulson's original, there was $700 billion earmarked for buying useless securities held by such companies as Goldman Sachs (for whom Paulson was formerly CEO).

I thought the $700 billion part was scrapped, but apparantly was resurrected under TARP? Or is TARP a part of the original Act signed by GW?

[Mobties]

Excellent question.

I’ve always felt there was a fast shuffle.

[Toddsterpatriot]

TARP was originally intended to buy poorly performing securities, to get them off the banks books. They changed their minds and used it to buy preferred shares in endangered financial institutions instead.

[cc2k]

The house voted down the original bill. Then it was resurrected in the Senate with about $150 Billion in additional "sweeteners" (buying votes with earmarks, tax breaks for constituencies, etc.) The Senate passed it and the house then passed the Senate version without amendment.

There was about $700 billion in that for buying "troubled assets." Nobody ever figured out how to find the "troubled assets," so that $700 billion became a slush fund. It was used to buy stock in banks, and to give GM and Chrysler "bridge loans" to get them to a bankruptcy court or merger, and for all manner of other spending which actually had nothing to do with "troubled assets." It was a boondoggle, and it never should have passed. Luckilly, the Republicans who voted for it are in leadership positions now, so we'll be able to do it again some time.

Any Congressman or Senator who voted for that should have been primaried and run out of DC at the next opportunity. Unfortunately, people who vote have short memories.

[Liz]

REFERENCE Behind The Real Size of Obama's Wall Street Bailout (more like $14 trillion)
Mother Jones | Dec. 21, 2009 / FR Posted January 04, 2010 by E. Pluribus Unum

A guide to the abbreviations, acronyms, and obscure programs that make up the $14 trillion federal bailout of Wall Street.

The price tag for the Wall Street bailout is often put at $700 billion—the size of the Troubled Assets Relief Program. But TARP is just the best known program in an array of more than 30 overseen by Treasury Department and Federal Reserve that have paid out or put aside money to bail out financial firms and inject money into the markets. To get a sense of the size of the real $14 trillion bailout, see our chart here. Below, a guide to the pieces of the puzzle:

Treasury Department bailout programs (controlled by Rahm Emanuel)

Money Market Mutual Fund: In September 2008, the Treasury announced that it would insure the holdings of publicly offered money market mutual funds. According to the Special Inspector General for the Troubled Asset Relief Program (SIGTARP), these guarantees could have potentially cost the federal government more than $3 trillion [PDF].

Public-Private Investment Fund: This joint Treasury-Federal Reserve program bought toxic assets from banks and brokerages—as much as $5 billion of assets per firm. According to SIGTARP, the government's potential exposure from the PPIF is between $500 million and $1 trillion [PDF].

TARP: As part of the Troubled Asset Relief Program, the Treasury has made loans to or investments more than 750 banks and financial institutions. $650 billion has been paid out (not including HAMP; see below). As of December 21, 2009, $117.5 billion of that has been repaid. Government-sponsored enterprise (GSE) stock purchase: The Treasury has bought $200 million in preferred stock from Fannie Mae and another $200 million from Freddie Mac [PDF] to show that they "will remain viable entities critical to the functioning of the housing and mortgage markets." GSE mortgage-backed securities purchase: Under the Housing and Economic Recovery Act of 2008, the Treasury may buy mortgage-backed securities from Fannie Mae and Freddie Mac. According to SIGTARP, these purchases could cost as much as $314 billion [PDF].

--SNIP--- long read

Federal Reserve bailout programs

Commercial Paper Funding Facility: With the support from the Treasury, the Fed established the CPFF in October 2008 to increase the availability of short-term debt (commercial paper) funding. Up to $1.8 trillion [PDF] was earmarked for the program.

Mortgage-backed securities purchase: In 2009, the Fed earmarked up to $1.25 trillion to buy investments based on home loans.

Term Asset-Backed Securities Loan Facility: TALF provides financing to investors who are buying asset-backed securities. In February 2009, the Fed and Treasury announced an expansion of the program to generate up to $1 trillion in new lending.

Foreign Central Bank Currency Liquidity Swaps: The Fed has provided $755 billion [PDF] for currency liquidity swaps with foreign central banks.

--SNIP--- long read

[LouAvul]

That's very important information. I wonder where I could find documentation?

I delivered a presentation in an advanced accounting class re the 2008 Act. When I was finished only 3 people (including, to my dismay, the professor) felt we should be bailing out inefficient business institutions. Their criteria was, if it's big enough (GM, TARP, etc) then it's justified.

The rest of the class (~35 people) agreed that Free Market demands that inefficient businesses/businesses who make poor market decisions must be allowed to fail.

[Toddsterpatriot]

And all the short term loans and swaps have been repaid, at a profit.

All the bank TARP, repaid at a profit.

The only losing items will be Fannie and Freddie, the auto makers and the mortgage forgiveness parts.

[cc2k]

Well, I'm not sure what documentation you need. The first bill was added as an amendment to H.R. 3997. The vote was recorded as #674 that year. The actual bill text is hard to find. The TARP stuff was added as an amendment,

The final version was an amended version of H R 1424. The vote on that was recorded vote #681, and it passed 263 to 171, with more Republicans voting against it than for it, and Democrats voting for it by close to a 3 to 1 margin.

As far as documenting where the money was actually spent, good luck with that.

Paulson had a closed door meeting with CEOs of the major banks on October 13, 2008, and told them that they were accepting money and he was buying preferred shares in their banks, whether they wanted it or not. That was only a small part of the TARP money, though.

Here's an article from May of 2009, after Judicial Watch pried loose some documentation of that October 13, 2008 meeting. Documents: Paulson forced 9 bank CEOs into bailout -- Paulson told 9 bank CEOs they were required to take TARP money, government documents confirm.

You'll have to do other research. George W. Bush, I think, gave the order to grant "bridge loans" to GM and Chrysler, and to offer guarantees to Ford in case of a GM or Chrysler failure which might wipe out some of Ford's suppliers. Congress couldn't agree on anything and I seem to remember Bush doing this by executive action.

Then, in February or March of 2009, The Won made additional contributions from the TARP funds to GM and Chrysler, after they were ordered by the Pres__ent to present plans to recover their businesses. During that time, Obama also fired the CEO of GM and installed his puppet, with no experience in the automotive industry, to run "the new GM."

[cc2k]

Toddsterpatriot wrote:

The only losing items will be Fannie and Freddie, the auto makers and the mortgage forgiveness parts.

That and all the GM stock the government holds, which it will never be able to sell for enough to break even on the bailout to GM. If I remember, the breakeven price was around $130/share, and it has gone up on the remaining shares as the government has sold some of that stock.

In reality, most of the TARP funds were squandered and lost. The "loan" that GM repaid was only $6.1 billion. And they used "TARP Capital funds" from stock sales to pay back that money, essentially paying a TARP debt with TARP bailout funds. They received much more than the loan in bailout through stock purchases by the government. And those shares will never be worth what was paid for them.

Seems like I remember the CBO estimated the losses on TARP funds put into automakers (all of them) at around $34 billion.

Other TARP expenditures also lost money (a lot of money), in spite of claims that they "turned a profit." The aleged profits are usually smoke and mirrors and accounting trickery when you start digging into the claims that the government "made money" on the deal.

[Toddsterpatriot]

The only losing items will be Fannie and Freddie, the auto makers and the mortgage forgiveness parts.

That and all the GM stock the government holds, which it will never be able to sell for enough to break even on the bailout to GM.

Yes.

In reality, most of the TARP funds were squandered and lost.

What do you mean "most"?

Other TARP expenditures also lost money (a lot of money), in spite of claims that they "turned a profit."

The Treasury sold the preferred stock back to the banks and some of the warrants to the public. They've gotten back more money, in total, than they invested in the bank stock.

The aleged profits are usually smoke and mirrors and accounting trickery when you start digging into the claims that the government "made money" on the deal.

Please show me the results of your "digging".

[Siena Dreaming]

Or is TARP a part of the original Act signed by GW?

Yes, it is and it was $750B. Half was used by Bush...he left the rest to be spend by his successor whether it would be McCain or Obama.

He didn't need the whole thing to staunch the emergency; the fact that such a huge amount was voted through Congress and available to the banking community was enough to reassure and stabilize.

Most of the money has been paid back as Bush promised it would be although he was laughed at at the time.

[cc2k]

OK. It looks like I'm off my game today. Somehow I managed to read your first reply, then cut and paste it, and I still didn't see the "Auto makers" in there.

It's been a while since I looked into the fiasco that was TARP. Instead of continuing to demonstrate my possibly faulty memory and possible lack of understanding, let me ask you two some questions so you can enlighten me.

First, Tell me if my understanding of this is correct.

When the bill passed and became Public Law 110-343, some funds ($250 billion IIRC) were made available to the treasury secretary. This money was authorized to be spent and put into a "TARP fund" for the secretary to use.

Eventually, the TAPR fund grew, first to $350 billion, then ultimately to $700 billion.

Paulson used some of this money to buy preferred shares in the banks. Other amounts were used to bail out the auto makers, and for other purposes.

My question is this, after the banks bought back their preferred stock, "returning the money plus interest," did their repayments go to the general treasury? Or did those payments go back into the "TARP fund" where the treasury secretary could use them to buy additional "troubled assets?"

My understanding is that once authorized, those funds are available to any future treasury secretary to spend on anything he/she determines is a "troubled asset." So, when the banks "paid back" their loans/bought back their preferred stock, that money is now in an account that is already authorized to be spent.

So if Geithner and Obama want to call Solydnra or Evergreen Solar a "troubled asset," can they use this money to buy those bankrupt "green energy" companies.

Was the authorization ever revoked? Did the TARP fund have an expiration date? Have these funds been returned to the treasury? Or do Geithner and Obama now have a $700 billion slush fund to spend however they want?

Until that money is de-authorized, de-allocated and returned to the treasury general fund, we have no idea whether the taxpayers "made a profit" or not. We don't know how much was spent or wasted, because it's still available to be spent again.

[Toddsterpatriot]

My question is this, after the banks bought back their preferred stock, "returning the money plus interest," did their repayments go to the general treasury? Or did those payments go back into the "TARP fund" where the treasury secretary could use them to buy additional "troubled assets?"

I think it remained in the "TARP fund".

My understanding is that once authorized, those funds are available to any future treasury secretary to spend on anything he/she determines is a "troubled asset."

I think that was the original idea.

Was the authorization ever revoked? Did the TARP fund have an expiration date?

According to this TARP ended.

Until that money is de-authorized, de-allocated and returned to the treasury general fund, we have no idea whether the taxpayers "made a profit" or not.

I disagree. TARP made a profit.

If the government wastes the profit (and the original funds) that doesn't change the fact that a profit was made.

[Siena Dreaming]

When the bill passed and became Public Law 110-343, some funds ($250 billion IIRC) were made available to the treasury secretary. This money was authorized to be spent and put into a "TARP fund" for the secretary to use. Eventually, the TAPR fund grew, first to $350 billion, then ultimately to $700 billion.

As far as I understand it, 700B was originally allocated to the fund. 250B was to be released immediately, with another 100B available if the President certified that the amount was necessary.

The second installment of 350B could be released with another certification from the President; this is the batch of money Bush left available for his successor. Obama released the second batch in Mar. '09 I think.

[Siena Dreaming]

Last I heard the Gov’t had gotten all but 25B back.

[Pagey]

Great Post Thanks!