Saturday, August 28, 2010

Buy low...

The much maligned TARP - which has cost many incumbents in Congress their job - is not just working, it's turning out to be the best investment decision around by anybody.  Check out these numbers.

Under the program, the government provided matching funds and ultracheap loans to investment firms like AllianceBernstein and Oaktree Capital that agreed to buy mortgage securities from banks and other financial institutions.
Taxpayers stood to share in any of the profits, though the prospects of such a windfall were seen as secondary to the goal of unclogging the markets.
Nine months into the program, the eight investment funds chosen by the Treasury Department have generated an estimated return of about 15.5 percent for taxpayers, according to an analysis of their results through the end of June by Linus Wilson, an assistant professor of finance at the University of Louisiana, Lafayette.
Two of the investment funds — one operated by an Angelo, Gordon-GE Capital consortium and another by BlackRock — have gotten off to even stronger starts, posting returns of more than 20 percent.
That translates into a paper profit of roughly $657 million for taxpayers. Some Wall Street analysts project that taxpayers could earn as much as $6.2 billion on these investments over the next nine years, from an investment of about $22 billion.
To be sure, the funds’ standout performance can be attributed to a rally in the mortgage bond market that began late last year and may be hard to repeat.
Still, it is a remarkable turnabout. When the administration announced the Public-Private Investment Program, critics lambasted it as yet another giveaway to private equity firms and other Wall Street money managers — a program so ill-conceived that one prominent economist, the Nobel laureate Joseph Stiglitz, characterized it at the time as a “robbery of the American people.”
But the strong start of the funds has pushed aside many of those concerns. [More]
I give much of the credit to then-Sec. of Treasury Paulson and Pres. Bush, although this courageous act will likely remain distorted in the minds of omni-angry voters. Similar results - though much lower yields could occur for the GM buyout, when, if reversed by IPO, would make Pres. Obama a despicable "anti-socialist" (heh).

Many things could have been done better in that moment of panic.  But regardless of the flaws, I think history will show they prevented an all-out financial collapse


xyetay said...

John, you seem to report on the positive part of TARP while ignoring the less than positive parts.

From The Congressional Oversight Panel.

Overall, 87 banks and financial entities indirectly benefited from the US aid to AIG of which 43 are foreign, according to the panel's report. In addition to France and Germany, they include banks based in Canada, Britain, the Netherlands, Denmark and Switzerland.

The Congressional Budget Office estimates that taxpayers will lose $36 billion from the AIG rescue.


John Phipps said...


Fair point, but there are dang few reports about how the TARP worked where it did. Politicians can't run fast enough from it.

Meanwhile, I can't think of a single government program that doesn't have some really ugly waste as you say, where the wrong people benefit.

It's really hard these days to limit any financial action to our borders, given the global nature of so many companies.

AIG is truly a black hole that may never be anything other than an unrecoverable expense, like the S&L's or Farm Credit when they were bailed out.

But I still assert, given what I have been reading in the post-mortems after Lehman Bros. that the Bush administration and Congress prevented a collapse that would have rivaled the Great Depression.