15 Jun 2011

I Thought “We” Made Money on the Capital Investments of TARP?

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You know how Matt Yglesias & Friends like to say, “We made money on TARP,” by which they mean, “The US government made money on a subset of all transactions conducted under the TARP legislation”? Well, I was digging up some numbers for an upcoming article, and I came across something odd.

This (pdf or excel) is the latest report of TARP Investments. I’m looking at the Excel file, the first tab. And it looks like, even just focusing on the Capital Purchase Programs (i.e. the warrants and preferred stock in financial institutions, not the boondoggles of the auto bailouts), the government is reporting $2.59 billion in losses.

Anyone care to elaborate?

14 Responses to “I Thought “We” Made Money on the Capital Investments of TARP?”

  1. RS says:

    I’m always bothered by the idea that the profits/losses and/or cost/benefit bars are used to justify government projects. Even if the government were to have made $2.59 billion instead of lost it, it would still amount to a net loss of wealth to the private sector as all of those dollars came at the direct expense of private individuals and/or businesses that were not bailed who were competing against those that were. It’s just another form of wealth redistribution.

    Taxpayers on the whole do not “gain” from such transactions, some gain at the expense of others and everyone loses, even those in power who are doing the expropriating lose because in the long run their standard of living goes down with everyone else’s.

    • bobmurphy says:

      Oh, I wouldn’t be for TARP if it made money, but it’s just funny that the way I’m reading that report, even on the narrow criterion that Yglesias et al. are using, it seems to have lost money. But I am open to correction.

      • RS says:

        I know you wouldn’t support it but I do come across people who think that such and such government projects “made” money or benefits “the public” and they point to things just like these reports and insist that they are at the very least practical even if we all agree that it’s not moral. I would say that they are impractical because they are immoral, I don’t hold a dichotomy between the two.

        • Joseph Fetz says:

          I agree RS. It often seems odd to me how an organization that has a printing press, can borrow on the credit of other people, and can coerce funds (taxes) from society, cannot “make” money on projects. But, then I remember a great little book called ‘Bureaucracy’.

      • Silas Barta says:

        Oh, I wouldn’t be for TARP if it made money,

        Believe it or not (and it’s historically been not), this position is in no way anti-Bayesian. We can go over it all again if you like 🙂

  2. AP Lerner says:

    “the government is reporting $2.59 billion in losses.

    Anyone care to elaborate?”

    $2.3B of that is the investment in CIT that got completely wiped out. The rest is some other little regionals that got wiped out as well.

    You are an expert on fiscal and monetary policy and operations, shouldn’t you have known this like the back of your hand


    • bobmurphy says:

      OK, so then, when people say, “TARP made money,” they mean:

      (1) If you ignore the auto bailout, and

      (2) If you ignore the loans to CIT?

      I’m not being a wiseguy I’m being serious.

  3. Yancey Ward says:

    Government Accounting, Chapter 1, Page1, Sentence 1.

    “All losses are counted as gains.”

    • Joseph Fetz says:

      Ah, yes. Gotta love ‘Government Accounting’. Did you know Clinton had a surplus?

  4. Raja Khan says:

    It costs almost ‘zero’ to print the funds (digital perhaps). Any thing bought with almost zero cost even if sold for 1 dollar is logically a gain!? Or am I too smart for my own good 🙂

  5. Luke says:

    (3) if you ignore the fed’s balance sheet

  6. Casual reader says:

    Of course it’s a gain… a gain for the owner of the printer. He’s receiving something for nothing.

    But it’s a loss for the rest of us. Even if you don’t want to consider the opportunity cost because you know… the state knows better than us what we want. Even then, at least, they are bidding the prices of the *thing* up for the rest of us.

    • Casual reader says:

      Sorry, I wanted to reply to Raja Khan

  7. PMM says:

    I kept an eye on those spreadsheets a few years ago but got bored when Goldman started touting the 17% IRR they returned to the Treasury without talking about the 10s of Billions in FDIC Loan guarantees. If you made the top 5 banks/IB’s ( not including Citi ) pay back 30-50% IRRs on TARP based on the percentage of straight commercial banking in their revenues streams, most of the 10s of Billions in Bonuses payed out for 2009 would have gone to the Treasury ( and yes I realize much was paid in tax ). This would have killed NY, CT & NJ fiscally and left a few political campaigns looking for cash in 2010, but it would have made the CEO’s of the holding companies take a real hard look at balance sheet risk going forward. It is incredible that we still allow these companies to operate in the public markets without any real idea who is holding what net CDS exposures.

    Separately, Dr. Murphy, what happens with the FED balance sheet if they allow Treasury securities to mature? Where on the liabilities side do the Treasury accounts reside if at all? Since there is no velocity of reserves is it likely that they are currently selling back to the primary dealers and banks to take profits?