Saturday, June 12, 2010

TARP repayments now exceed principal expended


WASHINGTON —  It's no secret to the readers of this page that I was adamantly opposed to the whole idea of a $700 Billion TARP bailout in the first place.  The very unpinnings of the Constitution suggest freedom of choice, and that includes the freedom to fail without intervention by the government. 

Despite the obvious contradiction, the biggest banks in America were offered a lifeline, deemed "too big to fail."  So the demise of the financial house of cards we have constructed in America was staved off yet again for a future day of reckoning.  Many still contend the hastily constructed bill was patently unconsitutional on its face for those reasons alone, and I remain one of those people.

But in the spirit of fairness to the reader, I have to admit I was pleasantly surprised to get an update this week on exactly what happened under the program (yes, these things are actually reported by the U.S. Treasury Department, and they are public documents anyone can find online).

Treasury said Friday the total amount repaid to taxpayers for government funds used to bail out U.S. companies has surpassed, for the first time, the amount of outstanding debt.

The Treasury, in its May report to Congress on the Troubled Asset Relief Program, reported TARP repayments reached $194 billion, which has exceeded by $4 billion the total amount of outstanding debt — $190 billion.  Forget the fact the money was never used for its once-intended and stated purpose to buy up the toxic paper.  The banks used the money any way they desired with very little restraint.

Truth be told, the hammering on financial institutions by the very government that promoted and mandated that sub-prime mortgage lenders extend risky loans to unqualified buyers in the first place may have prompted the accelerated repayments.  Many would argue it was a government-created sub-prime mortgage bubble.  Recipients of TARP proceeds couldn't wait to get the money repaid just to get the threat of government intervention out of their boardrooms.

Those are facts, but there is always "more to the story."

The outstanding debt amount does not include $106.36 billion that has been committed to institutions but has yet to be paid out by the Treasury.  Factoring in that amount, the outstanding debt would be roughly $296 billion.  That's still way short of the original amount of $700 billion, so what happened to the balance?

According to the report, $489.88 billion has been committed to specific institutions, and $383.52 billion of that has been paid out by Treasury. The department said it does not expect to use more than $550 billion of the $700 billion program.

A Treasury official described the manner in which the department characterized the totals as "a cash flow issue."

"Going forward, there will continue to be repayments and expenditures on both sides of the ledger," Treasury officials explained, making it clear "the other money has not ultimately been dispersed yet."

With that said, the Treasury's report indicates the department has already signed contracts with institutions regarding the already and to-be distributed funds.

Still, the Treasury's assistant secretary for financial stability, Herb Allison, in a statement described the totals as a "milestone" and said this is "further evidence that TARP is achieving its intended objectives: stabilizing our financial system and laying the groundwork for economic recovery."

The preliminary benchmark was reached in May when the Treasury completed its sale of 1.5 billion shares of Citigroup Inc., "a transaction that provided gross proceeds of $6.18 billion to taxpayers," the Treasury said.

TARP investments posted an additional $23 billion return, bringing total revenue to $217 billion through the end of May, according to the Treasury.

Don't breathe that big sigh of relief too quickly, however.  Despite the government's positive investments made through the TARP program for banks, taxpayers could still face a loss on the program.

The Obama administration estimated last August that the total cost of TARP would be $341 billion. The Treasury, in May, told Congress that the lifetime cost of the program had decreased to $105.4 billion.

Looking ahead, the Treasury said additional expenditures from the TARP program are likely to focus on housing initiatives, and other programs that are tailored to help smaller banks and the securitization markets.

The department still anticipates repayments to continue to exceed the outstanding debt.

All I can say is that TARP touched my life a year ago, when my bank announced I was being considered for a mortgage modification if I could make three months of reduced trial payments.  That was ten months ago, and while I have been notified in writing I have been approved under the program there has been no evidence of the requisite modification paperwork.

And this is the very government gradually taking over every waking function in our lives through unprecedented and unsustainable amounts of debt financing, now in excess of $13 Trillion, and deficit spending for as far as the eye can see?  God help us all.

Only the American voters can reverse this trend by electing people who are sworn to reduce the size and the scope of the federal government.  There is absolutely no excuse for not voting this year, when the Afghan and Iraqi people can risk death to vote when they show up at the polls. 

If we can't see the assault on our freedoms when it is so obvious, we don't deserve deliverance from our enemies much less from ourselves.

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