TARP Bottom Line
Lifted from Robert Waldmann’s Stochastic Thoughts
TARP Bottom Line
TARP Books Closed (give or not give less than $ 1 billion).
According to Lew, the total profit for American taxpayers on TARP investments stands at $15.35 billion. The NYT report added, “Less than $1 billion in taxpayer funds remain scattered in about 35 community banks around the country, but with the sale on Thursday of the government’s last 54.9 million shares of Ally Financial … the Treasury declared the bailouts done.”
For some years now, I have been writing that estimates of the cost of TARP were probably over-estimates (I didn’t speculate whether it would actually be profitable). I told you so. It is true that TARP was small beans compared to the much huger Fed bailout efforts. Also TARP profits are tiny compared to the huge immense gigantic profits from the Fed’s efforts and the separate huge immense gigantic profits from the bailout of Fannie Mae and Freddi Mac. In those cases, we are discussing extremely high profits which are, at the least, among the highest profits ever reported in human history.
I have little doubt that TARP turned a net profit, but I also know that the government accounting for TARP is overly flattering.
Specifically with respect to AIG, the government converted their Preferred Equity to Common Equity. In the announcement of the conversion, the Government said they were converting at $35 per share when the stock was trading at $37. In fact, because of some fancy accounting and option issuance, the conversion was effectively at $45 per share. Also for AIG, the tax loss-carryforward should have been wiped out as a result of change in control that happened with the Government bailout. But AIG has maintained it’s tax-loss carryforward and hasn’t been paying anything close to its GAAP effective tax rate for years.