Posted by: adoseofliberty | December 8, 2009

A Smaller TARP Than Expected

Though it should come as no surprise to anyone who has even a cursory knowledge of money in government hands, it is a bit appalling to hear Nancy Pelosi speak about using the unanticipated “surplus” in the Trouble Asset Relief Program (TARP) program started late last year.  The Obama Treasury reported on Monday that TARP will cost $200 billion less than originally expected.

With the already $71 billion repaid by banks and Bank of America’s recent announcement that it will repay $45 billion of its borrowed funds, Treasury Secretary Tim Geithner projected that he expects to receive about $175 billion in bank repayments by the end of 2010.  Enter Nancy Pelosi.

Pelosi said TARP funds would be “appropriately used” to pay for new jobs promotion programs because “the more jobs we create the more money comes back into the public till” as tax revenue that will “reduce the deficit.”

That’s right: stimulus.  More stimulus.  And I thought the damning articles about the 30,000 “new jobs” created in non-existent congressional districts was more than enough to seal that coffin.  Let alone the fact that the United States is running record deficits with the federal budget deficit for fiscal year 2009 reaching a startling $1.4 trillion dollars.  The idea of another jobs bill is laughable.  According to the Wall Street Journal:

House Minority Leader John A. Boehner (R., Ohio), on Bloomberg television Friday, called it “the worst idea” he had ever heard.

More importantly, as Daniel Indiviglio in the Atlantic points out, this isn’t even about receiving back the bailout money faster than expected or using less of the funds than initially projected.  First of all, TARP is expected to be a net loss:

In August the Treasury estimated that it would lose $341 billion out of the $700 billion of funds it had to spend on the bailouts. Now it says it will only lose $141 billion.

Indeed, the taxpayer was going to take it, whether they wanted to or not.  Fed Chairmen Ben Bernanke offered these consoling words:

“Unlike some of the scare stories about $700 billion being thrown away, I do believe . . . in the end that there’ll be something close to a break-even there,” Bernanke said.

Secondly, this was a political move, not an economic one.  An estimate revised from $341 billion to $141 billion is an “improvement” of over 50%.  The Atlantic story explains that “while the original estimate would likely be blamed on the Bush administration, the new estimate could be spun to reflect the progress made during the Obama administration.”  Things always seem better, no matter what the actual results may be, when absolute failure is predicted.  The truth is, however, banks’ equity hasn’t risen by 50% or anything even close to that.  Jobless rates are still hovering around 10%.

There is some good news in all of this:

To exit TARP, and the additional oversight it brings, banks must buy back the government’s preferred shares and also agree on how to dispose of warrants the Treasury received as part of the deals.

At least to some degree the government will not be holding significant chunks of equity in the banking sector, although many would argue that this was absolutely ludicrous to begin with.



  1. […] And yet, with dizzying amounts of bailout money already anticipated as losses (see an earlier post), the Treasury is extending the TARP program until October 2010.  The default numbers start adding […]

  2. […] Perhaps he’s referring to the largest deficit in the history of the United States? Or maybe a 10-year budget outlook that sends the national debt to unprecedented levels?  Does anyone remember the wildly “successful” cash-for-clunkers?  Or the “stimulus” bill that did what exactly?  Oh yeah, lose money and create jobs in non-existing districts. […]

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