TARP Cost estimate lowered again
The projected cost of the $700-billion financial bailout fund — initially feared to be a huge hit to taxpayers — continues to drop, with the nonpartisan Congressional Budget Office estimating Monday that losses would amount to just $25 billion.
That’s a sharp drop from the CBO’s last estimate, in August, of a $66-billion loss for the Troubled Asset Relief Program, known as TARP. Going back to March, the budget office estimated that the program would cost taxpayers $109 billion.
No one could have predicted. And no I don’t get tired of being right all the time.
Rude intrusion:Ken here. For a perspective closer to mine than Robert’s, Donald Marron—who also drank the CBO kool-aid initially—looks at the wider picture of “TARP cost” here.
I wonder were the federal government get their revenue from. It didn’t cost the federal government $25 billions to save the economy. The government make hundreds of billions of dollars by saving the economy if not trillions. If we had gone into a long term depression like the 1930’s then government revenues would have decrease by about a trillion dollars a year while spending would have gone up by a trillion dollars a year and this would have gone on for a decade or two. Most people don’t seem to understand that the government and the economy are connected. That government spending can actually increase government revenues and that when the government cuts spending it can actually decrease its revenues. And when the government cuts spending during a downturn that it can actually cause the downtown to be more severe and actually cost the government a lot more money than it saved in lost revenues.
Dear Ken and Ray
Yes I agree that cost 25 billion number is just a tiny part of the story. The Fed is very stingy with information and the Fed bailout efforts dwarfed TARP. Also there is no Fed HAMP (the cost of which you will note is, according to the latest CBO estimate, exactly all of the cost of TARP). The only estimate I have seen of the cost to the Federal government of the Fed’s efforts is that it would yield a profit of $125 billion. That was back when TARP was forecast to cost $ 100 billion.
I am not confident that I can predict the CBOs latest forecast error. The reason is the Banks’ choice to not bother with mortgage transfer paperwork in order to evade a $50 per mortgage transfer fee. That could cost the banking system hundreds of billions in the unlikely event that banks are held to be subject to the law. That would add to the costs of TARP.
Nonetheless, I guess that the CBO is still overestimated the cost of TARP.
So what happened ? The banks had made a huge mess of things and the Treasury gave them a very generous deal. The fact that the bank, AIG and car companies bailouts are forecast to cost the Treasury zero seems impossible. If the Treasury ended up with zero loss when it was very generous to banks and their shareholders (including notably the Secretary of the Treasury) *and* someone had to lose huge amounts of money, then doing something like TARP in normal times and with a secretary who is definitely on the side of the Treasury should be hugely profitable. That is, the Treasury should invest in risky assets all the time.
This is my view. That would be socialism, well partial socialism and I am a partial socialist.
Dear Ken in particular
YOu say that Marron “also” drank the CBO koolaid initially. You imply that someone else drank the CBO Koolaid. Are you saying that you drank the CBO koolaid ? I certainly didn’t. I have consistently argued that CBO estimates of TARP costs are nonsensical. As usual, the fault lies with Congress, the CBO just followed specific orders. This is all explained in the linked post.
The simple fact is that for years, I have been writing that CBO forecasts of TARP costs are not the conditional expected value of TARP costs when all TARP uncertainty will be resolved and therefore predicting the direction in which they will be revised. I would consider that to be not drinking the CBO Koolaid. Also each of my many predictions has been correct.
OK DearRay I love. In 2008 and 2009, the Fed bought a lot of commercial paper at above market prices. It did so to drive the price up so firms could operate and not in order to profit from its investments. That uncertaintly resolved long ago. Do you have a guess as to whta fraction of that paper lost value due to default ? HOw about the realized final no more risk there return equal to the promised return minus costs of default ? Do you think the average return is more or less than 0.25% (the Fed’s cost of funds). Can you possibly imagine that the Fed managed to lose money while saving the economy by buying commercial paper ?
I believe that the Fed ought to buy 10% of each commercial paper issue from now until forever, since that will reduced the cost of funds to firms and the Fed will profit on average reducing the Federal debt. It profited buying debt instruments at far far above market prices during a crisis. Doesn’t that suggest that it holds the wrong portfolio in normal times ?
The question isn’t so much “Was it paid back?” as it is “Where did the money to pay it back come from?” If TARP truly enabled companies to dean with cashflow problems and they were able to use the extra time to raise sufficient capital by either selling assets on the open market or applying profits than it WAS a resounding success. If however it just enabled them to secure taxpayer funds that were better laundered, (free money to the banks, who in turn lent it to pay back tarp) it was a failure.
While TARP was packaged as a sort of quasi-equity program, in execution it does look more like a liquidity program. It was short-term in nature, and provided time for firms to shore up balance sheets through other means. This is backward from the more common practice of pretending there is only a liquidity problem, while trying to paper over a solvency problem.
So the question of whether to credit TARP with profits or other programs is the same one that would be faced with any liquidity program, when other efforts are also underway. Driving down the cost of funds to banks over an extended period does help them improve their balance sheet.
Which is to say, I think jim a is taking the right angle on the narrow issue that Robert addressed. When you offer liquidity assistance, and the standard goals of liquidity assistance are achieved, then the program is successful. That does not amount to a judgement on all the other programs that were undertaken. It does not amount to a judgement on the social utility of the entire government effort. It should be possible to look at the virtues of individual programs, even if we are unable to assess the virtues of the entire range of government rescue programs in aggregate.
By the way, since this was Robert’s post, and so represents Robert’s perspective, wouldn’t it have been better from a purely editorial point of view for Ken to post his own piece, from his own perspective?
Well, when it is presented thus: “The projected cost of the $700-billion financial bailout fund…”, as opposed to something like: ‘The projected ‘direct’ cost without related considerations…’, it is easy to understand why the term “kool-aid” came up.
“The projected cost”, in a literal and honest appraisal, is not possible to quantify. And this is a good example of how economists deceive the faithful and uninformed. It is, as so often happens, an offering of information that only achieves the desired result by excluding key considerations. Some of which I have already posted, but those too are only scratching the surface.
TARP and all related assistance that propped up the TBTF corporations, many of which are not even financial institutions, have further entrenched corporatism via a vast socializing of losses that would have otherwise, presumably, weakened the concentration of power that has undermined our democracy. How does ‘that’ “cost” get “projected”?
Plus, the financial services sector has obviously become parasitic, to the point that the emerging nations have banded together in an effort to restrict access to their capital markets, and yet there is little said about the “cost” of maintaining a financial services sector that is so clearly unsustainable in its current configuration. The combined public assistance, and QE/ZIRP in unison, have given the misleading impression that the demand for ‘skilled labor’ is well beyond the natural level, and yet such considerations are ignored. Then too, ARRP and deficit spending have distorted the labor markets even further by allowing more ‘skilled labor’ to remain employed when the demand for that labor is clearly supported with artificial means. Not to suggest that the artificial support was and is not warranted, but instead to say that a claim of “projected cost” comes with some inherent responsibilities.
Ray L-Love
“And no I don’t get tired of being right all the time”
The delphic oracle is reputed to have once said. Socrates is the smartest man in all the lands. Socrates thought I know that I am a dumb ass, so how can this be true? So Socrates sought out Athens self proclaimed learned men, and intellectually tested each of them only to establish that none of them was so smart as himself. Socrates realized that by knowing he was a dumbass he was smarter then the men who thought that they were smart, but in reality were to stupid to know that they were stupid.
If the US Federal Reserve made money printing a few trillion greenbacks saving the too big to fail this side of the Atlantic……………
how come the European Central Bank don’t stamp a few trillion new shiny Euro coins and deposit them in reserve in Portugal, Eire, Greece, and Spain?
Won’t they make money like the US???
Just a point on the semantics of the thing. A “projected cost” is entirely possible to quantify. The future cost is not so easy. A projection cost is an estimated future cost. You estimate, and there you are.
And so, while it may be, from your perspective, “easy to see” why kool-aid came up, it is easy as well to see why Robert would take umbrage. This seems very much a case of the author being criticized not because he was wrong, or for giving support to a dastardly agenda, but because he failed to make the point that others wanted made or to use the tone that others wanted used. Robert’s point was about making book on an accounting outcome. As a comment about an accounting outcome, Robert’s comment is unobjectionable. If others would like to make some other comment, I believe this establishment offers scope for that.
Nope. I didn’t argue that ‘a’ “projected cost”, such as that which Robert presented as something that is impossible to quantify. My point is clearly about what is being excluded, as in: “an offering of information that only achieves the desired result by excluding key considerations”. Plus, by my use of the word “honest”, considering all of the support that I also included to make my case, my premise is easily justified.
Also, my statement reads thus: ““The projected cost”, in a literal and honest appraisal, is not possible to quantify.” Which is entirely different than what you presented in quotation marks so as to imply something else: “”A “projected cost” is entirely possible to quantify.” Consequently, you have once again cheated on the context in order to add the needed spin by ignoring the part where I say: “in a literal and honest appraisal”.
And so, if Robert is in fact only concerned about “making book on an accounting outcome”, then, he should have made that understood, which, as I explained, is something he could have done with only a few carefully chosen words. But, instead, this post reeks of ‘I told you so’ from a Keynesian POV. Which is of course a POV that is often questioned in regards to unintended consequences caused by counter-cyclical stimulus. ‘Distortions’ and ‘related costs’ are by no means some obscure controversy that doesn’t need consideration in an article on this subject. Unless of course some agenda is served by exclusions of pertinent information.
And so, as my comments make clear, the cost of TARP is far more complicated than this post suggests. And… as also stated, this is the sort of material that misleads those who don’t put in the amount of time and effort that I do. So I contributed as I saw fit, which is in keeping with this forum.
Anyway, kharris, you have once again allowed your emotions to cloud your thinking. Read what I said in context, I am not one of those contributors who slaps up strings of unsupported claims, and so… plucking what you think will make a cute criticism is not all that easy. You are seeing what you want to see, but not what is actually there.
Tough on Unemployed, cannot encourage the moral hazard of sloth!!
Too Good to Be True,
http://www.ritholtz.com/blog/
Pro Publica has been maintaining a list of bailout recipients, updating the amount lent versus what was repaid.
So far, 938 Recipients have had $607,822,512,238 dollars committed to them, with $553,918,968,267 disbursed. Of that $554b disbursed, less than half — $220,782,546,084 — has been returned.
Whenever you hear pronunciations of how much money the TARP is making, check back and look at this list. It shows the TARP is deeply underwater.
Not actually there? Ray, this is what you wrote first: “The projected cost”, in a literal and honest appraisal, is not possible to quantify”
Then, you wrote this: “I didn’t argue that ‘a’ “projected cost”, such as that which Robert presented as something that is impossible to quantify.”
That was pretty amazing.
Then, you wrote a long bunch of crap, which more or less argues exactly what I suggested you were arguing – you wanted to make a point other than the one Robert was making, and got going the “kool-aid” along the way. You wante to correct his point of view, rather than arguing with the point he actually made. In effect, you suggested that anybody who saw the issue in some other way than you did was a sucker for propaganda. And you accused me of “once again” being emotional? You, the guy who falls back on saying you didn’t write what you had just written, who falls back on “reeks of” and the claim that leaving things out that you want in serves and agenda – again, more or less demonstrating that your objection to Robert’s post is not that it’s wrong, but that it didn’t say what you wanted it to say. So thanks for that.
Well, everyone gets emotional, as you have amply demonstrated here. However, not all of us turn small minded and dishonest in defense of our petty little views, as you have done.
kharris,
I am not arguing that I didn’t want “to make a point other than the one Robert was making“. That is you making an issue out of what suits your childish view of how this forum should work. Obviously though, if exclusions allow an author to mislead, then other information needs to be added. If a post suggests for example that the TARP turned out better than expected when other considerations suggest otherwise, what would be the point of this forum if not for those other considerations? Once again, your truth twisting has forced you to take a ludicrous position as the twists are unraveled. Familiar ground, this.
Not surprisingly then, you missed my point about your other deceit regarding the context of what I said. To begin with, you altered what I wrote and then put that altered material in single quotation marks. However, I used the following words which are from the post, and so, I put them in quotation marks:
“The projected cost”, but you then made what must have seemed a clever change to: “ A” “”projected cost”” is entirely possible to quantify”. So, here is how your sentence would read if written honestly:
“”The projected cost”” is entirely possible to quantify. And, as if the obvious difference in the meanings of ‘a projected cost’ and ‘the projected cost’ are not entirely different in just that simple contrast, you also ignored the qualifiers from the remainder of my sentence, which reads: ““The projected cost””, in a literal and honest appraisal, is not possible to quantify”.
And, as if your pretending that those qualifiers mean nothing is not enough evidence of your lacking integrity, your use of single quotation marks implies that you are quoting me, when in fact, I am quoting Robert. All things considered, your argument is nothing more than a poorly constructed lie made ludicrous by an argument against arguing itself.
It is an improvement though, that this time you did not just scurry away and pretend that the conversation had ended when it clearly had not, ended. Courage is the remedy to delusional thinking.
Oh, Ray, you make this so easy. You stoop so low, and do it right out in there in print. So please, keep it up.
OK, having gone right to implied insults in your first comment, with the whole “kool-aid” thing, you then stepped up the personal attacks with the whole “getting emotional again” response to me – while backing away from the substantive claim you had first made about “projected costs”. So, one implicit insult aimed at Rober, then a dismissal of anything I might say as “emotional” and now “courage”?
And apparently, a conversation isn’t over till you decide it is? Woohoo! You must have a really high opinion of yourself. Cause really, how could you publish that hash of a justification for contradicting yourself otherwise.
No, ray, I’m not the emotional one here. Well, unless you count glee at watching you thrash around in the mess you’ve made. You took a cheap shot. I called you on it. You got mad and ranted. The first comment exposed a lack of thought. Your self contradiction did the same again. Everything since then has been comical, and all along the way, you’ve been a howling, insulting little snot. Great going!
Almost forgot. TARP was a financial transaction, not a fiscal expansion, so the Keynesian POV thing is kinda wrong. This was more of a Bagehot-gone-wild thing. ray, if you don’t know what stuff means, you should avoid writing about it.
Funny, also, that you claim Robert wasn’t clear and should have been that he was talking about an accounting exercise, then assert that your point was “clearly” something other than I, as a native speaker of English, took it to be, after I pointed out that the point you seemed to be making was trash. So, ray, you not only insist that you can know who is emotional, who is Keynesian, who is brave and true, but also that your own written expressions are dead clear while Robert’s is not. If that’s all the self-proclaimed capacity you need to dress yourself in before entering into a discussion, well why not rewrite all the history books to your own liking, while you’re at it?
I’ll give you some credit here for courage, but the rest is nothing but a side-stepping of the relevant points of ‘our’ argument, yes, you fail to confront supported claims of mine with more hair-splitting efforts that are beside the points still in play, your point about Keynesianism for example (see what it means to support, notice too that your comments lack the term: ‘for example’ and etc. But are complete with juvenile examples of what is nothing more than name-calling: “Everything since then has been comical, and all along the way, you’ve been a howling, insulting little snot.”).
Essentially, your last 2 comments are a rant accusing me of ranting. With, of course your typial penchant for distorting the truth, this for exmaple:
“…while backing away from the substantive claim you had first made about “projected costs”
How could I be “backing away” when the entire thrust of my last comment, with only the exception of one small paragraph at the end, was addressed directly at your original criticism? Here is all but that last paragraph, be brave and explain to me what part is “backing away”:
I am not arguing that I didn’t want “to make a point other than the one Robert was making“. That is you making an issue out of what suits your childish view of how this forum should work. Obviously though, if exclusions allow an author to mislead, then other information needs to be added. If a post suggests for example that the TARP turned out better than expected when other considerations suggest otherwise, what would be the point of this forum if not for those other considerations? Once again, your truth twisting has forced you to take a ludicrous position as the twists are unraveled. Familiar ground, this.
Not surprisingly then, you missed my point about your other deceit regarding the context of what I said. To begin with, you altered what I wrote and then put that altered material in single quotation marks. However, I used the following words which are from the post, and so, I put them in quotation marks:
“The projected cost”, but you then made what must have seemed a clever change to: “ A” “”projected cost”” is entirely possible to quantify”. So, here is how your sentence would read if written honestly:
“”The projected cost”” is entirely possible to quantify. And, as if the obvious difference in the meanings of ‘a projected cost’ and ‘the projected cost’ are not entirely different in just that simple contrast, you also ignored the qualifiers from the remainder of my sentence, which reads: ““The projected cost””, in a literal and honest appraisal, is not possible to quantify”.
And, as if your pretending that those qualifiers mean nothing is not enough evidence of your lacking integrity, your use of single quotation marks implies that you are quoting me, when in fact, I am quoting Robert. All things considered, your argument is nothing more than a poorly constructed lie made ludicrous by an argument against arguing itself.
So… unless “backing away” means that I am unwilling to base my arguments on the distortions that you are so dependent on, as opposed to my arguing with the distortions themselves, you have once again deceived […]
In the US, the banks can borrow from TARP, then borrow from the FED, or more likely sell the FED crummy assets at inflated prices, in order to pay back the Treasury.
The structure of the EU/ECB makes this accounting “efficiency” more difficult.
The FED just did their Frankendodd mandated data dump showing that they spewed $3.3 Trillion in loans. Seems they still are holding back on where $885B went.
http://www.nakedcapitalism.com/2010/12/fed-thumbs-its-nose-at-audit-the-fed-withholds-data-required-on-885-billion-of-collateral.html
So until we somehow can figure the accounting, separating out TARP as a success is rather meaningless. It’s like when corporations say “If we break out our losses separately, we can show a profit”. Or when banks say ” If we put all our liabilities in an offshore, unregulated SIV, our balance sheet looks great!”.
Except much, much bigger.
Robert,
I made an honest criticism of your post which I provided more that ample evidence for, only to be subjected to this:
“OK DearRay I love.”
Anyway… your posts are a waste of time. And I suppose that on the very rare occasions that I have commented on what you have offered, my underlying lack of respect for your posts must have become clear to you somehow. But I have never resorted to name-calling. But in the future, if the lack of interesting reading material becomes even less available than it is now; or, more accurately, if I am looking for an example of just how lazy and selfish posts can be, in an effort perhaps to better understand how short-sighted views are instilled, perhaps I will come up with a derivative of your name too:
Regurgetatorbert Withnothingtoaddman, perhaps. (I’ll work on it if needed [it will not be needed, I do in fact have a news feed on the margin of my screen that, in one sentence, tells me as much as this post does, except the part about you of course, but then of course your ‘prediction’ is a waste of time in its own right]).