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GAO: Almost Half of Bailed Banks Repaid the Government With Money “From Other Federal Programs”

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By Matt Stoller, former Senior Policy Advisor to Rep. Alan Grayson and a fellow at the Roosevelt Institute. You can reach him at stoller (at) gmail.com or follow him on Twitter at@matthewstoller

The Government Accountability Office continues its subtle war on the talking point used by Treasury that “TARP made money”. Here’s the GAO, with a report out today.

As of January 31, 2012, 341 institutions had exited CPP, almost half by repaying CPP with funds from other federal programs. Institutions continue to exit CPP, but the number of institutions missing scheduled dividend or interest payments has increased.

Much of the government-supplied TARP funding (to small banks) was replaced by the Small Business Lending Fund passed in 2010, which Republicans called “TARP 2.0″.  The larger banks, however, where much of the bank-based credit creation in the economy takes place, didn’t use this program.  Instead, they got an implicit subsidy of between $6B and $300B a year from the widespread belief that the government will not let their bondholders lose money.

The talking point that the Troubled Asset Relief Program made money for the taxpayer is an important structural argument for the Treasury Department and the political elements in the Obama White House.  Yves Smith quoted an earlier GAO report on this phenomenon a few months ago.

Although Treasury regularly reports on the cost of TARP programs and has enhanced such reporting over time, GAO’s analysis of Treasury press releases about specific programs indicate that information about estimated lifetime costs and income are included only when programs are expected to result in lifetime income.

Our banking system is still reliant on the government for support.  Officials can claim that TARP made money, but it’s becoming increasingly clear that this is a way of avoiding a description of the actual policy framework.

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37 comments

  1. Carla

    Banks: the biggest “welfare queens” in the whole corporate jungle, which says quite a lot!

    Nice to know the GAO is waging a “subtle war” on Treasury’s claims. When the 99% finally decide to stand up, it ain’t gonna be subtle.

  2. John Mack

    The Big Banks also get to “borrow” as much as they want from the Federal Reserve at 0-1% interest. They leave some of that money on depeosit with the Fed and earn a good interest on it. They also use the “borrowed” money for speculative trading, creating dodgy derivatives, buying foreign bnds and inflating profits/bonuses. What a racket.

    1. Ms G

      Indeed. Imagine if Obama and/or Congress had responded to the Great Crash by allowing all tax-payers to borrow $100K at 0-1% from the “facility” and then to buy treasuries and earn interest for a year, or two, or three. That would have created plenty of “liquidity” . . . just not the kind envisioned in the debt-peonage program being aggressively executed by our Gov and it’s crony oligarchs.

  3. Conscience of a Conservative

    The gov’t seems to have trouble with the roles of actin as a regulator of the banks and one of bein lender of last resort. The latter seems to have been distorted to such a degree as to imply that the the gov’t should use any and all means to prop up the banks, using accounting relief, regulatory relief and out-right subsidies.

  4. Skeptic

    Wasn’t that the purpose for founding of the Federal Reserve to help the Banks? Federal Reserve sure ain’t help’n me and my savings. Obviously, the founding was not too prevent a Great Depression or future depressions. As long as all boats are floating, no problems, right.

  5. steelhead23

    I no longer believe anything the government tells me. The GAO may be an exception.

  6. JamesW

    Outside of Neil Barofsky, Elisabeth Warren, and Phil Angelides, the only continuing heroic types I’ve ever seen in D.C. were and are the GAO — they should return to issuing them firearms the way they did during the ’30s and World War II!

    And that includes operating with a colossal amount of pressure from the completely corrupt US Congress!

    The GAO — America’s true Omega Sector — the last firewall to absolute chaos! Really, come to think of it, perhaps they should change their organizational name to:

    http://upload.wikimedia.org/wikipedia/en/d/d7/Uncle_logo.JPG

  7. Glen

    This has been so obvious for so long that it’s pathetic to think all those reports of TARP “making money” were believed by anyone except for the most idiotic among us.

    Then throw in banks getting free money from the Fed, and the added bonus of the ludicrous government “making money” when all taxpayers ended up doing was paying bankster bonuses – the TBTF banks have been a huge drag on the economy – they don’t make anything but MORE DEBT. Wiping out the TBTF banks is one sure way to have the real economy recover.

  8. Llyod Blankstein

    See the bright side. Almost half of the banks paid back TARP money without government help !!

      1. James Cole

        No, they’re not, actually, or we wouldn’t have central banks, but they are supposed to be regulated and, there should be justice for the individuals who use banks to steal.

    1. nonclassical

      this is complete fabrication, propagandized to confuse the ignorant-Banks were given tax credits…rather than payback.

      Also, if you will do diligence, you will find Senator Sanders, DeMint, and Congressman Grayson himself, long ago filed for first ever FED audit, “freedom of information act”…and got it.

      That audit shows FED subsidized banks secretly with $16 trillion. Look it up; please don’t take anyone’s word for it-FED AUDIT.

  9. Pitchfork

    Matt,

    It’s important to point out the less visible subsidies to the banks (like the savings they get from the implicit govt guarantee or low short-term rates from the Fed), however the simple fact is that TARP itself — on its own terms — has not made money.

    I haven’t checked the numbers in a couple of weeks, but last I checked TARP still had over 120B outstanding of the 410B actually disbursed. But even looking at Wall St. alone, AIG still owed us over 50B and the “profits” Treasury received from the TBTF’s only amounted to about 33B. (If you include the entire bank program, the amount still owed is over 67B, dwarfing the so-called “profits.”)

    In sum, it’s important to talk about the big picture, but even when it comes down to basic details, the Treasury flat-out lies about the numbers. And the media repeats those lies.

    See here: http://dailybail.com/home/corporate-media-fails-again-ap-fact-check-repeats-zombie-lie.html

      1. F. Beard

        Rather, with the population’s own stolen purchasing power. Such is the nature of “credit”.

        1. Skippy

          Purchasing power is the nomenclature of commodity bugs, store of wealth, hoarders thingy.

          Skippy… yet your plan is to issue *democratic (snicker)* coupons, wheres the power in that, store of wealth at par ad infinity?

          1. F. Beard

            I’ll go slow so you can understand.

            “Bank loans create deposits.” Now where does the purchasing power for that new money come from? It comes from all existing money holders especially the “non-credit-worthy”.

            That’s theft, particularly from the poor. In the past, it was particularly from non-whites too (Lookup “redlining”).

            Snicker about that.

          2. skippy

            Boy you have it bad… “Now where does the purchasing power for that new money come from?”

            Skip here… Hay… “purchasing power” is classicist rubbish as the mind changes, therefore *value* is time preferenced aka a manufactured experience in this day and age. Human activity has become a profit only exercise, couch it any way you like but, at the end of the day, its about the .001% manipulating the herd.

            Skippy… how about the theft of all living things from having laws to secure a future just so a bunch of ass scratching monkeys can facilitate their ignoramatic self projections.

            PS. finish Greabers book, intellectual tard, refute with evidence or get of the road of factual learning.

  10. Ralph Musgrave

    In addition to the two studies into the size of TBTF subsidies mentioned in the above post, another study was done by Andrew Haldane of the Bank of England. This put the size of the subsidy at substantially more than total bank profits. See 3rd paragraph under the heading “Implicit subsidies” here:

    http://www.voxeu.org/index.php?q=node/7314

    Another point here is that the phrase “too big to fail subsidy” is inappropriate in that it suggests that if we split the biggest banks up into smaller units, that solves the whole problem. It doesn’t.

    Even if big banks are split up, the taxpayer still has to reimburse depositors when a small bank goes bust (at least in countries where banks do not pay a premium for their insurance, the taxpayer foots the bill). And where banks DO PAY a premium, they still have an incentive to be irresponsible – in the same way as car insurance is almost an incentive to behave irresponsibly on the road.

    The latter “small bank” problem is largely resolved by ending the farce under which depositors are allowed to reap the benefits of having their bank use their money in a commercial fashion, while being insulated against the risks normally associated with commercial activity. For more on this, see:

    http://ralphanomics.blogspot.com/2012/02/big-fdic-anomaly.html

  11. Woodrow Wilson

    “Our banking system is still reliant on the government for support.” -

    Wasn’t there a post by Yves some time ago regading “Mis-Priced Options”?

    Pretty sure that was a gift intended for the banks, but may have been lost among readers not understand what a mis-priced option is? I tried explaining it to some friends and all I got was blank stares and more drinking.

  12. john jackson

    Banksters, Banksters everywhere!
    They’re in your pocket! They’re in your hair!
    They’ll steal your house! They’ll steal your car!
    Where are the feathers? Where is the tar?

  13. Obsvr-1

    And don’t forget the shame game of exchanging debt (Dividend bearing Preferred Shares) for equity. The gov’t lost years ($B’s) of dividend payments from the saved institutions, in many cases the dividends have been waived and to date many institutions are still not paying the dividends. Then, once the exchange of equity for debt was made, the payment back to the gov’t comes from the market (duped investors) instead of from the institution cash flow.

    In a twisted irony, the people that were screwed by these institutions in collapsing the financial market are the very same that are now holding (indirectly) equity in these institutions. The people just don’t know it, because the vast majority of equity stock is held by investment institutions using pension funds, 401K, Mutual funds, retirement plans.

    Such a grand shell game of wealth transfer to the executives and bond holders under the facade that these institutions repaid the TARP, and the Gov’t profited (yippee), all while ‘peanut buttering’ the loss across the ignorant (not pejorative, but uninformed) masses.

  14. Terry Anderson

    I find it quite ironic that a forum for such articulate, well-informed and angry discussion, clearly a home for scathing indignation, has banner ads for
    Car Title Loans, Free Promissory Notes, and $59 Bad Credit Removal.
    C’mon, guys.
    That aside, great site. Keep up the Good Fight.

  15. RSDallas

    It’s amazing that the public hasn’t woken up to the fact that it is the malinvestments of these so called TBTF banks that will continue to gum up the economy on top of the lost investment capital being squandered in Washington. America would explode with growth if these 2 issues were addressed. How can so many Americans be so blind to this. Let them fail!

  16. John Steinsvold

    An Alternative to Capitalism (if the people knew about it, they would demand it)

    Several decades ago, Margaret Thatcher claimed: “There is no alternative”. She was referring to capitalism. Today, this negative attitude still persists.

    I would like to offer an alternative to capitalism for the American people to consider. Please click on the following link. It will take you to an essay titled: “Home of the Brave?” which was published by the Athenaeum Library of Philosophy:

    http://evans-experientialism.freewebspace.com/steinsvold.htm

    John Steinsvold

    “Insanity is doing the same thing over and over and expecting a different result.”
    ~ Albert Einstein

    1. Obsvr-1

      There is nothing wrong with a Competitive Free Market Capitalism …

      we need to try it.

      Today we are living in a world of crony-capitalism which is the enemy of true capitalism.

      1. Merrylib

        The problem with economic theories is that they don’t take into account the human element.

    2. marvin keith

      “Home of the Brave” is a marvelous, tongue-in-cheek parody of Socialism to bookend “Animal Farm”. It is so sincere that it appears to have seduced Mr. (I hope not Professor) Steinsvold with its Utopian glow.

    3. Marvin Keith (again)

      Re: the Einstein comment. Doing the same thing over and over is the way we test for anomalies. Discerning the difference in similar results teaches us the direction, likelihood and probable magnitude of future growth or failure. It may be that repetitve failure is either stubbornness occasioned by cognitive dissonance or in the alternative a valiant effort to overcome some limitation by becoming stronger or better through the effort. Insanity is in the eye of the beholder. A general theory is that like any Utopian, a patent clerk can get in over his head trying to unify sundry conjectures.

  17. Yata

    “The Government Accountability Office continues its subtle war on the talking point used by Treasury that “TARP made money”. Here’s the GAO, with a report out today.

    “The report you requested was not found. No similar report numbers could be located.”

  18. Bayard Waterbury

    Wow, what a trip. The GAO didn’t have to tell me this. The Quantitative Easing program, which the FED claims is its last major “tool” to help spur the economy is very simply the single largest thing responsible for the “new” bubble (not just American, but global) being constructed, bit by obfiscatory bit, by the TBTF Bankster Conglomerate on Wall Street. These massive “rent seekers” while wining about the regulatory rules being slowly and not inexorably put in place to support the puny constraints of Dodd-Frank, continue to borrow massive sums from the FED under QEII at about 25 basis points to support their criminal enterprise of massive commodity speculation, creation of a truly hellacious new inventory of CDS’s (rumored to be more than a Quadrillion dollars at this point), as they are the sole drivers of the Dow’s vaunted recovery by propriety, programatic stock trading. The TARP, from beginning to end was a Plutocratic farce created by the power elite to keep their pockets brimming with your money. Let’s face it, the only thing keeping the Euro from total collapse is the FED, since the ECB has been loath to intervene with significant force to truly salvage the weakest country’s. All roads lead to Wall Street, Treasury and the FED. And, we’re not really having a “recovery” except for the “1%ers”. Give things a few more months, until half the nation is on food stamps, and Europe collapses, and most of you will be wishing that the Mayan Calendar was right.

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