No it didn't. It didn't cover any losses, banks still wrote off hundreds of billions.
Citibank should have been liquidated
Why?
Furthermore Goldman Sachs shouldn't have been give 100% restitution for the insurance it bought from AIG.
So?
To complete the incestuous circle, banks made money by borrowing from the Federal Reserve at near zero interest rates and buying government bonds.
Near zero? The discount rate is 0.75%.
Banks were the first ones to take advantage of the Federal Reserve's Zero interest-rate policy.
But banks can't borrow from the Fed at near zero.
I've wondered if TARP would've made money if interest-rates would reflect the inherent risk in the market at the time (2008-2010).
I wonder why people think a collapse of the banking system, similar to the Great Depression, would be better than the profitable bank TARP that prevented a banking collapse.
Anybody with three functioning brain cells knew by say, late 2005, that the housing market was wildly overvalued. Anyone who said otherwise was either ignorant, or lying out of self interest.
All George Bush had to do was to make it clear in late '05 or early '06 that there would be no bailouts, that the banks' owners were 100 percent at risk for any bad investment decisions they had made.
it shielded Citibank from dealing with its skeletons in the closet.Between December 1, 2007 and July 21, 2010, Citibank borrowed 2.513 trillion dollars from the Federal Reserve. If it didn't have any skeletons, why did it borrow from so many credit lines instituted by the Federal Reserve (more than any other financial institution)?No it didn't. It didn't cover any losses, banks still wrote off hundreds of billions.
Sheila Barr in her book "Bull by the Horns" nicknames Tax-cheat Timmy the "Bailouter in Chief", who was on the phone with Citibank's CEO more than any other bank. Furthermore, she asserts that Citibank was the only bank that needed help from the TARP bailout. So, yes I think we can assert that the bailout and actions by the Federal Reserve shielded Citi from its own ineptness. Here's a quote from NY Times review of Bair's book that sheds light on my assertion:
Early on in the crisis, she said, Mr. Geithner wanted Ms. Bair’s agency to financially support Citigroup’s planned $1-a-share acquisition of Wachovia. In turn, the F.D.I.C. would receive $12 billion in preferred stock and warrants.In essence, the US Treasury was subsidizing the risk and indeptitude of Citibank.Mr. Geithner and Citigroup held private talks about the deal without telling Ms. Bair, according to her account. Regulators then planned to allow Citigroup to count the stock as capital, a boost to the bank’s “sagging capital ratios.”
When Wells Fargo swooped in with a higher offer that required no government backing, Ms. Bair indicated her support for the new deal. Mr. Geithner, she said, was “apoplectic” and wanted the F.D.I.C. to stand behind Citigroup, which then raised its bid. The Fed ultimately approved the Wells Fargo deal and Citigroup required two infusions of government capital.
As Citi continued to suffer in 2009, Ms. Bair pressed for the bank to put its troubled assets into a “bad bank” supported by private money. Ms. Bair said she received no support from other regulators, who feared it would unnerve the markets.
Sheila Bair answers your question here. Again, it's not the role of taxpayers to subsidize badly run businesses.Citibank should have been liquidated
Why?
Furthermore Goldman Sachs shouldn't have been give 100% restitution for the insurance it bought from AIG.So?
Any other market-based payout would not have been 100-cents on the dollar for all the insurance AIG insured to Goldman and all of it's other counterparties.
To complete the incestuous circle, banks made money by borrowing from the Federal Reserve at near zero interest rates and buying government bonds.The Federal Funds Rate is between 0.00% and 0.25%Near zero? The discount rate is 0.75%.
Banks were the first ones to take advantage of the Federal Reserve's Zero interest-rate policy.Yes, the banks did borrow from the Federal Reserve at near zero rates. Under the TAF Program Citibank borrowed money at 0.2% in late 2008, 2009. It wasn't until March of 2010 when the Federal Reserve raised the interest rates to 0.50%. The Primary Dealer Rate is now 0.75%, and you're technically right...it's not zero. That doesn't mean that low-interest rates are not a subsidy to banks.But banks can't borrow from the Fed at near zero.
I've wondered if TARP would've made money if interest-rates would reflect the inherent risk in the market at the time (2008-2010).The banking system would not have collapsed if TARP was not passed, bad assets would've been written off a lot quicker. Bair puts it like this,I wonder why people think a collapse of the banking system, similar to the Great Depression, would be better than the profitable bank TARP that prevented a banking collapse.
“Our bailout strategies didn’t clean out bad mortgage assets, and we didn’t force banks to take losses,” she says. “We imposed no accountability and did no fundamental restructuring. We were Japan, and I think we have a Japan-like recovery because of it.”
TARP was unnecessary, if the US Treasury wanted to spend money, it should've issued tax refunds not cash to a mismanaged financial institutions. Individual taxpayers have to bear the brunt of the risk taking, mismanagement, rate subsidization, debt-guarantees of the government to the financial institutions, not necessarily to stimulate the general economy (which financial institutions do) but to encourage rent seeking, (i.e. borrowing from the Fed at low rates, loan the Federal government, and make money on the spread.).
I wonder why people want to prevent forest fires at all times, even when the forest is filled with overgrowth, especially when if more forest fires were allowed, afterwards the forest would be more vibrant and promote growth.