TARP Repayments

[sdrealtor]

Thanks for the update and FWIW I beleived you. I guess that doesnt qualify as an I was wrong post though.

[briansd1]

[quote=davelj]
While TARP was, admittedly, just a part of the overall “assistance” given to financial institutions… this thread was about TARP, so I’m sticking to the topic at hand. TARP may be a horrible program in all sorts of ways (particularly with respect to moral hazard), but… the CPP money will get paid back, which few of you believed would happen. Not to worry, I don’t expect anyone to post acknowledging they were wrong about this.[/quote]

I always believed you Dave. Mathematically, it makes sense.

Infuse banks with huge capital, then lend them unlimited amounts of money at near zero % which they can turn around and lend at a nice margin. Plus give them an undetermined amount of time to pay the money back, and they’ll pay it all back, at least in nominal terms. It’s just a matter of time.

Notice that while banks’ cost of capital is near zero, the cost of debt for everybody else has not proportionately dropped.

I was against the bank bailouts at first, but after some reflection, I believe that it was the right thing to do to save our financial system from collapse. I only wished that at least the top bank excecs had been fired.

[briansd1]

[quote=davelj]
While TARP was, admittedly, just a part of the overall “assistance” given to financial institutions… this thread was about TARP, so I’m sticking to the topic at hand. TARP may be a horrible program in all sorts of ways (particularly with respect to moral hazard), but… the CPP money will get paid back, which few of you believed would happen. Not to worry, I don’t expect anyone to post acknowledging they were wrong about this.[/quote]

I always believed you Dave. Mathematically, it makes sense.

Infuse banks with huge capital, then lend them unlimited amounts of money at near zero % which they can turn around and lend at a nice margin. Plus give them an undetermined amount of time to pay the money back, and they’ll pay it all back, at least in nominal terms. It’s just a matter of time.

Notice that while banks’ cost of capital is near zero, the cost of debt for everybody else has not proportionately dropped.

I was against the bank bailouts at first, but after some reflection, I believe that it was the right thing to do to save our financial system from collapse. I only wished that at least the top bank excecs had been fired.

[briansd1]

[quote=davelj]
While TARP was, admittedly, just a part of the overall “assistance” given to financial institutions… this thread was about TARP, so I’m sticking to the topic at hand. TARP may be a horrible program in all sorts of ways (particularly with respect to moral hazard), but… the CPP money will get paid back, which few of you believed would happen. Not to worry, I don’t expect anyone to post acknowledging they were wrong about this.[/quote]

I always believed you Dave. Mathematically, it makes sense.

Infuse banks with huge capital, then lend them unlimited amounts of money at near zero % which they can turn around and lend at a nice margin. Plus give them an undetermined amount of time to pay the money back, and they’ll pay it all back, at least in nominal terms. It’s just a matter of time.

Notice that while banks’ cost of capital is near zero, the cost of debt for everybody else has not proportionately dropped.

I was against the bank bailouts at first, but after some reflection, I believe that it was the right thing to do to save our financial system from collapse. I only wished that at least the top bank excecs had been fired.

[briansd1]

[quote=davelj]
While TARP was, admittedly, just a part of the overall “assistance” given to financial institutions… this thread was about TARP, so I’m sticking to the topic at hand. TARP may be a horrible program in all sorts of ways (particularly with respect to moral hazard), but… the CPP money will get paid back, which few of you believed would happen. Not to worry, I don’t expect anyone to post acknowledging they were wrong about this.[/quote]

I always believed you Dave. Mathematically, it makes sense.

Infuse banks with huge capital, then lend them unlimited amounts of money at near zero % which they can turn around and lend at a nice margin. Plus give them an undetermined amount of time to pay the money back, and they’ll pay it all back, at least in nominal terms. It’s just a matter of time.

Notice that while banks’ cost of capital is near zero, the cost of debt for everybody else has not proportionately dropped.

I was against the bank bailouts at first, but after some reflection, I believe that it was the right thing to do to save our financial system from collapse. I only wished that at least the top bank excecs had been fired.

[briansd1]

[quote=davelj]
While TARP was, admittedly, just a part of the overall “assistance” given to financial institutions… this thread was about TARP, so I’m sticking to the topic at hand. TARP may be a horrible program in all sorts of ways (particularly with respect to moral hazard), but… the CPP money will get paid back, which few of you believed would happen. Not to worry, I don’t expect anyone to post acknowledging they were wrong about this.[/quote]

I always believed you Dave. Mathematically, it makes sense.

Infuse banks with huge capital, then lend them unlimited amounts of money at near zero % which they can turn around and lend at a nice margin. Plus give them an undetermined amount of time to pay the money back, and they’ll pay it all back, at least in nominal terms. It’s just a matter of time.

Notice that while banks’ cost of capital is near zero, the cost of debt for everybody else has not proportionately dropped.

I was against the bank bailouts at first, but after some reflection, I believe that it was the right thing to do to save our financial system from collapse. I only wished that at least the top bank excecs had been fired.

[davelj]

[quote=davelj]
While TARP was, admittedly, just a part of the overall “assistance” given to financial institutions… this thread was about TARP, so I’m sticking to the topic at hand. TARP may be a horrible program in all sorts of ways (particularly with respect to moral hazard), but… the CPP money will get paid back, which few of you believed would happen. Not to worry, I don’t expect anyone to post acknowledging they were wrong about this.[/quote]
[quote=briansd1]
I always believed you Dave. Mathematically, it makes sense.

Infuse banks with huge capital, then lend them unlimited amounts of money at near zero % which they can turn around and lend at a nice margin. [/quote]

Sorry to nitpick, but this is factually incorrect. The “lending” that your referencing here are discount window borrowings and these are matched up on the asset side of the balance sheet with cash and short-term securities, on which there is no meaningful spread (if any at all). Now… as the Fed lowers rates, deposit rates and FHLB borrowing rates ALSO decline, on which the banks then make a “nice margin” (using your words). But… there is no margin on the discount window borrowings – that’s just for liquidity. Just making a technical point.

[quote=briansd1]
Notice that while banks’ cost of capital is near zero, the cost of debt for everybody else has not proportionately dropped. [/quote]
This is also incorrect. The banks’ “cost of capital” is most certainly not near zero. In fact, it’s quite high historically (recall that cost of equity, which is high right now, is a major component of the overall cost of capital). Discount window borrowings are just one small part of the “cost of capital” calculation, and the biggest liability on a bank’s balance sheet is deposits – which are not “capital.” I think what you meant to say is that the cost of borrowing money – from whatever source – for the large banks is low (but not near zero) from a historical perspective. But overstating your case doesn’t make it stronger.
[quote=briansd1]
I was against the bank bailouts at first, but after some reflection, I believe that it was the right thing to do to save our financial system from collapse. I only wished that at least the top bank excecs had been fired.[/quote]

Who knows. I agree that far more folks should’ve been fired. The TBTF execs are, for the most part, a bunch of dirtbags protecting their turf at all costs.

[davelj]

[quote=davelj]
While TARP was, admittedly, just a part of the overall “assistance” given to financial institutions… this thread was about TARP, so I’m sticking to the topic at hand. TARP may be a horrible program in all sorts of ways (particularly with respect to moral hazard), but… the CPP money will get paid back, which few of you believed would happen. Not to worry, I don’t expect anyone to post acknowledging they were wrong about this.[/quote]
[quote=briansd1]
I always believed you Dave. Mathematically, it makes sense.

Infuse banks with huge capital, then lend them unlimited amounts of money at near zero % which they can turn around and lend at a nice margin. [/quote]

Sorry to nitpick, but this is factually incorrect. The “lending” that your referencing here are discount window borrowings and these are matched up on the asset side of the balance sheet with cash and short-term securities, on which there is no meaningful spread (if any at all). Now… as the Fed lowers rates, deposit rates and FHLB borrowing rates ALSO decline, on which the banks then make a “nice margin” (using your words). But… there is no margin on the discount window borrowings – that’s just for liquidity. Just making a technical point.

[quote=briansd1]
Notice that while banks’ cost of capital is near zero, the cost of debt for everybody else has not proportionately dropped. [/quote]
This is also incorrect. The banks’ “cost of capital” is most certainly not near zero. In fact, it’s quite high historically (recall that cost of equity, which is high right now, is a major component of the overall cost of capital). Discount window borrowings are just one small part of the “cost of capital” calculation, and the biggest liability on a bank’s balance sheet is deposits – which are not “capital.” I think what you meant to say is that the cost of borrowing money – from whatever source – for the large banks is low (but not near zero) from a historical perspective. But overstating your case doesn’t make it stronger.
[quote=briansd1]
I was against the bank bailouts at first, but after some reflection, I believe that it was the right thing to do to save our financial system from collapse. I only wished that at least the top bank excecs had been fired.[/quote]

Who knows. I agree that far more folks should’ve been fired. The TBTF execs are, for the most part, a bunch of dirtbags protecting their turf at all costs.

[davelj]

[quote=davelj]
While TARP was, admittedly, just a part of the overall “assistance” given to financial institutions… this thread was about TARP, so I’m sticking to the topic at hand. TARP may be a horrible program in all sorts of ways (particularly with respect to moral hazard), but… the CPP money will get paid back, which few of you believed would happen. Not to worry, I don’t expect anyone to post acknowledging they were wrong about this.[/quote]
[quote=briansd1]
I always believed you Dave. Mathematically, it makes sense.

Infuse banks with huge capital, then lend them unlimited amounts of money at near zero % which they can turn around and lend at a nice margin. [/quote]

Sorry to nitpick, but this is factually incorrect. The “lending” that your referencing here are discount window borrowings and these are matched up on the asset side of the balance sheet with cash and short-term securities, on which there is no meaningful spread (if any at all). Now… as the Fed lowers rates, deposit rates and FHLB borrowing rates ALSO decline, on which the banks then make a “nice margin” (using your words). But… there is no margin on the discount window borrowings – that’s just for liquidity. Just making a technical point.

[quote=briansd1]
Notice that while banks’ cost of capital is near zero, the cost of debt for everybody else has not proportionately dropped. [/quote]
This is also incorrect. The banks’ “cost of capital” is most certainly not near zero. In fact, it’s quite high historically (recall that cost of equity, which is high right now, is a major component of the overall cost of capital). Discount window borrowings are just one small part of the “cost of capital” calculation, and the biggest liability on a bank’s balance sheet is deposits – which are not “capital.” I think what you meant to say is that the cost of borrowing money – from whatever source – for the large banks is low (but not near zero) from a historical perspective. But overstating your case doesn’t make it stronger.
[quote=briansd1]
I was against the bank bailouts at first, but after some reflection, I believe that it was the right thing to do to save our financial system from collapse. I only wished that at least the top bank excecs had been fired.[/quote]

Who knows. I agree that far more folks should’ve been fired. The TBTF execs are, for the most part, a bunch of dirtbags protecting their turf at all costs.

[davelj]

[quote=davelj]
While TARP was, admittedly, just a part of the overall “assistance” given to financial institutions… this thread was about TARP, so I’m sticking to the topic at hand. TARP may be a horrible program in all sorts of ways (particularly with respect to moral hazard), but… the CPP money will get paid back, which few of you believed would happen. Not to worry, I don’t expect anyone to post acknowledging they were wrong about this.[/quote]
[quote=briansd1]
I always believed you Dave. Mathematically, it makes sense.

Infuse banks with huge capital, then lend them unlimited amounts of money at near zero % which they can turn around and lend at a nice margin. [/quote]

Sorry to nitpick, but this is factually incorrect. The “lending” that your referencing here are discount window borrowings and these are matched up on the asset side of the balance sheet with cash and short-term securities, on which there is no meaningful spread (if any at all). Now… as the Fed lowers rates, deposit rates and FHLB borrowing rates ALSO decline, on which the banks then make a “nice margin” (using your words). But… there is no margin on the discount window borrowings – that’s just for liquidity. Just making a technical point.

[quote=briansd1]
Notice that while banks’ cost of capital is near zero, the cost of debt for everybody else has not proportionately dropped. [/quote]
This is also incorrect. The banks’ “cost of capital” is most certainly not near zero. In fact, it’s quite high historically (recall that cost of equity, which is high right now, is a major component of the overall cost of capital). Discount window borrowings are just one small part of the “cost of capital” calculation, and the biggest liability on a bank’s balance sheet is deposits – which are not “capital.” I think what you meant to say is that the cost of borrowing money – from whatever source – for the large banks is low (but not near zero) from a historical perspective. But overstating your case doesn’t make it stronger.
[quote=briansd1]
I was against the bank bailouts at first, but after some reflection, I believe that it was the right thing to do to save our financial system from collapse. I only wished that at least the top bank excecs had been fired.[/quote]

Who knows. I agree that far more folks should’ve been fired. The TBTF execs are, for the most part, a bunch of dirtbags protecting their turf at all costs.

[davelj]

[quote=davelj]
While TARP was, admittedly, just a part of the overall “assistance” given to financial institutions… this thread was about TARP, so I’m sticking to the topic at hand. TARP may be a horrible program in all sorts of ways (particularly with respect to moral hazard), but… the CPP money will get paid back, which few of you believed would happen. Not to worry, I don’t expect anyone to post acknowledging they were wrong about this.[/quote]
[quote=briansd1]
I always believed you Dave. Mathematically, it makes sense.

Infuse banks with huge capital, then lend them unlimited amounts of money at near zero % which they can turn around and lend at a nice margin. [/quote]

Sorry to nitpick, but this is factually incorrect. The “lending” that your referencing here are discount window borrowings and these are matched up on the asset side of the balance sheet with cash and short-term securities, on which there is no meaningful spread (if any at all). Now… as the Fed lowers rates, deposit rates and FHLB borrowing rates ALSO decline, on which the banks then make a “nice margin” (using your words). But… there is no margin on the discount window borrowings – that’s just for liquidity. Just making a technical point.

[quote=briansd1]
Notice that while banks’ cost of capital is near zero, the cost of debt for everybody else has not proportionately dropped. [/quote]
This is also incorrect. The banks’ “cost of capital” is most certainly not near zero. In fact, it’s quite high historically (recall that cost of equity, which is high right now, is a major component of the overall cost of capital). Discount window borrowings are just one small part of the “cost of capital” calculation, and the biggest liability on a bank’s balance sheet is deposits – which are not “capital.” I think what you meant to say is that the cost of borrowing money – from whatever source – for the large banks is low (but not near zero) from a historical perspective. But overstating your case doesn’t make it stronger.
[quote=briansd1]
I was against the bank bailouts at first, but after some reflection, I believe that it was the right thing to do to save our financial system from collapse. I only wished that at least the top bank excecs had been fired.[/quote]

Who knows. I agree that far more folks should’ve been fired. The TBTF execs are, for the most part, a bunch of dirtbags protecting their turf at all costs.

[davelj]

[quote=davelj][quote=sdrealtor]Thanx dave. I’m just a layperson in these matters and wonder where the truth lies. I’m sure plenty others do also.[/quote]

Well, I don’t know where the “truth” lies either. No one does. But, I do have a few numbers that can shed some light on the subject.

Total TARP outlays have been $458 billion to 734 institutions, broken out as follows:

$228 billion to banks and CIT
$110 billion to Fannie/Freddie
$ 70 billion to AIG
$ 50 billion to Auto Companies

Of the BANK-related TARP, here are the stats:

$161 billion has been repaid (including Citi). There are $58 billion of planned repayments via capital raises currently in the works, scheduled to be completed by the middle of 2010. That leaves $9 billion of bank-related TARP that will likely be outstanding for at least a few more years.

Treasury has collected $9.7 billion in interest payments plus profit on warrants sold (which does not include warrants sold in BofA or Citi). Total losses – which won’t be recovered – from failed entities are $2.5 billion thus far. There are also $2.8 billion worth of TARP in which interest payments have been deferred (that is, the banks can’t make them) – so, let’s just call those losses to make things easy. So, $5.3 billion of losses (almost half of which is from CIT alone).

So, barring a cataclysm over the next six months, it’s likely that less than $20 billion of bank-related TARP will be left outstanding by mid-2010 (held by hundreds of small banks, however), and revenues (interest + sold warrants) will have exceeded expenses (charged-off TARP).

I said many moons ago (I’ll try to find the thread) that we’d likely get back 80%-110% of the bank-related TARP. I think I can tighten that band to 90%-110%.

I think the Fannie/Freddie (F&F) TARP will also get paid back, but over a much longer time horizon. Spread lenders, almost no matter how bad off they are, can always fill a hole, the only issue being how long it takes. And it’s going to take F&F a long time. To use an example, lets say that F&F charge off 10% of their portfolio (which would be a big number). Further, let’s say the average yield on the remaining 90% of their book is 5.5% and their funding costs (now borrowing at govt rates) are 2.5%. Add in 100 bps of operating expenses and you have a 200 bp spread. Here, it takes F&F 5.5 years to fill its hole (from losses) with spread income from the performing portfolio. If you assume that F&F’s losses are going to be 20% of its book, it takes them 11 years to fill the hole, and so on. So, while we’re hearing about the big “losses” coming out of F&F – which are real losses – we will get that money back… eventually… but it could be many years. We will lose in real (that is, inflation-adjusted) terms for sure.

Where AIG and the Autos are concerned, I don’t have a good idea as to what’s going to happen with that crap. Do we get back half of our money one day? Maybe. I think the likelihood of getting it all back is not materially different from zero.

So, our financial system made it through the Cat 5 hurricane damaged but not sunk, but the seas are still very choppy and the government continues to wield lots of buckets to bail out water that continues to leak into the boat. I’ll be surprised if we don’t have another tropical storm before 2010 is out, but the threat of all-out collapse has been diminished significantly. But I still see very stormy seas ahead for the next couple of years. It’s not going to be pretty.[/quote]

Read the Fannie & Freddie paragraph above in the context of:

http://news.yahoo.com/fannie-freddie-could-send-179-2-billion-taxpayers-175239683–sector.html

I was slightly too bearish (as I was with TARP).

Raise your hand if you if you agreed with me at the time.

[CA renter]

Good news for taxpayers. I only hope that the changes to the rules regarding dividends stay in place. Fannie and Freddie should remain under the umbrella of the govt, and these institutions should be used to help finance the govt, IMO.

[moneymaker]

I can’t believe credit card companies are charging rates as high as 29.99%. I guess our government can’t interfere if they want to get paid back. I personally would default before paying rates that high in this market.

[jeff303]

[quote=moneymaker]I can’t believe credit card companies are charging rates as high as 29.99%. I guess our government can’t interfere if they want to get paid back. I personally would default before paying rates that high in this market.[/quote]

What does that have to do with this thread? In any case, the main reason those rates are so high is because credit card debt is unsecured.

[Author]

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