TARP Bail Out Funds Update

From the Wall Street Journal


SEPTEMBER 25, 2009.Battle Brews Over Unused TARP Cash .ArticleVideoComments (46)more in Politics ».EmailPrinter
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Text .By DEBORAH SOLOMON and MICHAEL R. CRITTENDEN
WASHINGTON -- The U.S. Treasury Department is discussing ways to keep in reserve some emergency bailout funds even if the Troubled Asset Relief Program isn't extended beyond the end of the year.


The Treasury is considering whether to extend the bailout in order to keep control of a remaining $200 billion. But that decision is complicated by lawmakers who are worried about the increasing national debt, WSJ's Deborah Solomon reports.
.Treasury Secretary Timothy Geithner may opt to extend the program, which expires on Dec. 31. But even if the program isn't extended, officials want to keep at least some of the money that has yet to be committed to any particular program on hand in case financial conditions worsen and the government is forced to step in.

The decision of whether to extend TARP has become embroiled in a debate over the unpopularity of the $700 billion bailout and the nation's mounting fiscal woes.

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Vote: Should the Troubled Asset Relief Program be extended beyond this year?
.Mr. Geithner hasn't yet determined whether to extend the government's TARP authority, Treasury officials said. Even if TARP is allowed to expire, the program won't technically end until the government's investments are repaid and the U.S. is no longer a shareholder in financial institutions.

Treasury officials are discussing whether there is any way to preserve that money without extending TARP. While there is no plan to spend additional bailout funds, Treasury officials want the ability to respond in case financial conditions deteriorate.

Neal Wolin, Treasury's deputy secretary, said it was too early to make a decision on whether to extend TARP. "We will be looking at and making judgments about [extending TARP] in the weeks and months ahead," Mr. Wolin said in response to questions after a speech Thursday.

As markets begin to stabilize and the economy shows signs of strength, some lawmakers are demanding the program cease and that any unused and repaid TARP funds go to pay down the nation's debt. Last week, a group of 39 Republican senators and one Democrat sent a letter to Mr. Geithner urging him to let TARP expire and to use returned bailout funds "for debt reduction." About $128 billion of the $700 billion remains uncommitted.

The U.S. is expected to hit its $12.1 trillion debt ceiling later this fall. Mr. Geithner has asked lawmakers to raise that limit so the government can continue borrowing money to fund its obligations.

The debate has been complicated by the independent overseers of the bailout, who have questioned both the success of the program and whether taxpayers will ever recover their investments. At a hearing Thursday, the special inspector general for TARP said the program has improved market stability but fallen short on broad goals, such as spurring lending. "It is extremely unlikely that the taxpayer will see a full return on its TARP investment," Neil Barofsky told the Senate Banking Committee.

Treasury officials worry giving up the remaining funds could destabilize markets by removing a potential safety net and handicap government officials in the event that financial conditions worsen.

"In this context, it is prudent to maintain capacity to address new developments," Herb Allison, the Treasury assistant secretary who heads TARP, told lawmakers on Thursday. Mr. Allison wouldn't say whether he believed the program should be extended.

Some lawmakers remain skeptical about TARP and its effectiveness and say the program has the potential to turn into a permanent government subsidy if it isn't ended quickly. "I share the concern with a lot of Americans that this is creeping into status quo and a much higher permanent level of government involvement in the market," Sen. David Vitter (R., La.) said at Thursday's hearing.

To assuage concerns, government officials are taking steps to end some TARP programs no longer deemed necessary, such as a guarantee of money-market mutual funds, which expired last week. Treasury officials expect to allow an untapped program to funnel more money into banks to expire later this year.
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From ProPublica.org

Your August Bailout Update: $393 Billion Outstanding
by Paul Kiel, ProPublica - September 2, 2009 10:25 am EDT
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Starting with this post, we’ll be updating you every month on the status of the taxpayer-funded bailouts we track in our database [1]—namely the TARP [2] and government rescue of Fannie Mae and Freddie Mac [3].

Recent [4] reports [5] have drawn attention to the billions in revenue that the Treasury Department has collected from companies early in returning their TARP investments. While those returns [6] have been encouraging, there’s no question that the taxpayer remains deep in the red.

In total, $392.6 billion remains outstanding to 641 recipients ($297 billion under the TARP and $95.6 billion that’s gone to Fannie and Freddie). That total excludes the 35 companies that have returned a total of $71.6 billion [7].

In August, the Treasury invested $129.8 million in nine banks (see our timeline [8] for more details). It also put $10.7 billion more into Fannie Mae [9].

The Treasury will likely invest or spend billions more. Fannie and Freddie will probably need billions more in assistance [10]. And two major bailout programs have yet to start shelling out committed funds. Treasury plans to use up to $30 billion for its toxic securities program [11], which could begin this month. It has also set aside $50 billion for its mortgage modification program [12], which is already well underway. Under the program, participating loan servicers are only paid subsidies if the loans they modify survive a three-month trial period without defaulting. Forty-two servicers have signed up [12], and roughly 235,000 trial modifications [13], of the administration’s projected total of up to 4 million, had been started by the end of July.

There is also a major commitment to AIG that may cost taxpayers more. The company has to date received $41.5 billion, but Treasury has committed to providing $28 billion more if it’s needed [14].

That said, money is flowing in as it’s flowing out. The TARP has two main sources of revenue: quarterly dividend or interest payments and warrant redemptions. Unlike returned money, which can be used again, the Treasury is obligated to use that revenue to pay down the national debt.

You can see our catalogue of all dividend and interest payments here [15]. The vast majority of recipients pay a dividend at a rate of five percent annually. Companies that got special aid, like AIG and Citigroup, pay higher rates. So far, bailout recipients have paid $9.6 billion in dividends.

That amount includes the $2.1 billion in dividends paid by Fannie and Freddie. Those payments are a bit of a mirage, however. The rate is set at 10 percent but will jump to 12 percent if the companies miss a payment, so neither has. But since the companies rely on taxpayer money to remain solvent, dividend payments are “effectively funded from equity drawn from the Treasury,” as Fannie Mae stated in a recent regulatory filing [16] (PDF). In other words, until the companies stop losing money, Treasury will continue to pay the dividends to itself.

So far, the Treasury, through refunded TARP investments, has collected $2.8 billion in exchange for its warrants [7]. The stock warrants, which give the U.S. the right to buy equity in the companies at a set price, came as a condition of the investments. When companies refund the Treasury’s money, the warrants are either sold back to the company or auctioned off.

Put all that together, and you get a total of $12.4 billion in revenue. Compared to the $392.6 billion in bailout funds still outstanding, it’s reason for cooling any thoughts, at least for now, of the taxpayer pulling a profit.

Latest Bailouts
$576 billion of taxpayer money has been allocated or promised to 704 companies and 12 programs.

Sep 18, 2009 IA Bancorp, Inc.
Preferred Stock w/ Exercised Warrants $6 million
Sep 18, 2009 HomeTown Bankshares Corporation
Preferred Stock w/ Exercised Warrants $10 million
Sep 16, 2009 Bay Federal Credit Union
Incentive Payments for Home Loan Modification $410 thousand
Sep 11, 2009 Pathfinder Bancorp, Inc.
Preferred Stock w/ Warrants $6.8 million
Sep 11, 2009 Community Bancshares of Mississippi, Inc.
Preferred Stock w/ Exercised Warrants $52 million
Sep 11, 2009 Heartland Bancshares, Inc.
Preferred Stock w/ Exercised Warrants $7 million
Sep 11, 2009 PFSB Bancorporation, Inc.
Preferred Stock w/ Exercised Warrants $1.5 million
Sep 11, 2009 First Eagle Bancshares, Inc.
Subordinated Debentures w/ Exercised Warrants $7.5 million

More...

About This Project
We're tracking where the bailout money is going. Our lead bailout reporter – and blogger – is ProPublica's Paul Kiel. Lead developer is Dan Nguyen.

ProPublica is an independent, non-profit newsroom that produces investigative journalism in the public interest. We strive to foster change through exposing exploitation of the weak by the strong and the failures of those with power to vindicate the trust placed in them.