More Eulogizing

As an addendum to FRW’s TARP obituary, the Department of the Treasury released today a nearly 100-page report entitled “Two-Year Retrospective” that provides a comprehensive overview of TARP’s two-year history.

Most significantly, the report lowers—yet again—the Treasury’s estimate for TARP’s total cost to the American taxpayer from $105 billion to $51 billion. According to the report, the new estimate reflects last week’s American International Group (AIG) announcement that a deal has been finalized for the Treasury to begin unwinding its nearly $50 billion investment in the company through TARP, mainly through the Treasury’s swapping of its preferred AIG shares for over one billion shares of common stock, which will be sold over time. Treasury states that if the common stock shares held through TARP are sold at the market closing price for October 1 of $38.86 per share, Treasury would take a lower-than-expected net loss of $5.1 billion.

The report does project, however, significant losses in TARP investments for U.S. auto companies and other initiatives to assist homeowners in avoiding foreclosure of $17 billion and $46 billion, respectively.

In addition, outside of TARP, the report projects “substantial losses” from Government Sponsored Enterprises (GSEs) Fannie Mae and Freddie Mac through Treasury Preferred Stock Purchase Agreements (PSPAs).

Download Troubled Asset Relief Program: Two Year Retrospective (PDF).


Obituary: TARP (Born October 3, 2008; Died October 3, 2010)

Troubled Asset Relief Program – 2 years old, of Washington, D.C., passed away quietly on Sunday, surrounded by friends and supporters (excluding elected officials), as the Treasury’s authority to make new investments under the influential, yet politically reviled $700 billion program officially expired.

Offering its pre-written eulogy on Friday, the Treasury Department sought to highlight TARP’s legacy on the U.S. financial sector during its short, active and tumultuous life.

“Looking back, it’s clear that TARP has played a critical role in stabilizing the financial system during a period of historic crisis and has helped put our country on the path to economic recovery – at a fraction of that initiative’s original projected cost,” stated a Treasury press release on October 1, buoyed by recent Congressional Budget Office (CBO) figures that predict TARP losses to the taxpayer of $66 billion, down from the most recent Treasury estimates of $105 billion.

Born in the thick of the 2008 financial crisis, TARP was created under the Emergency Economic Stabilization Act of 2008 (EESA), an expedited congressional response to heightening fears that an economic collapse was imminent. Garnering significant bipartisan support in both congressional chambers, the EESA passed the Senate on October 1 by a vote of 74-25 (with 34 Republicans supporting) and two days later in the House by a vote of 263-171 (with 91 Republicans supporting) and was then quickly signed into law by President Bush.

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Retiring Senate Banking Committee Chairman Predicts Tough Road Ahead for a Director-Less CFPB

Perhaps no section of the sweeping Dodd-Frank Wall Street Reform and Consumer Protection Act is more controversial on both Capitol Hill and within the financial industry than that which creates an independent Consumer Financial Protection Bureau (CFPB)—and according to the outgoing Senate Banking Committee Chairman, until the President nominates and the Senate confirms a permanent CFPB director, the entire bureau may be at risk in the next Congress.

“Look, this was a controversial section of the bill—don’t have any illusions,” said Chairman Christopher Dodd (D-CT) in reference to the CFPB during a Banking Committee hearing yesterday that received testimony from the heads of the various financial regulatory agencies. “Regardless of the outcome of the election in November, there are going to be people trying to get rid of this bureau, and it’s going to be a lot easier to get rid of it if it hasn’t gotten up and gotten started demonstrating the value and importance of it. So it’s at risk in my view, until we get someone in running the place and demonstrating what it can do and the kind of rules it’s going to develop.”

President Obama’s decision on September 16 to temporarily appoint Elizabeth Warren as "special adviser" to the President and the Treasury Secretary for standing up the CFPB has failed to appease Chairman Dodd, who has repeated such ominous warnings to the administration over the past few months. When taking the newly emboldened GOP and their recent rhetoric into account, Dodd’s sentiments don’t appear to be overstated.

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