Bailout Loss Estimated at $29 Billion

In a new report released yesterday, the Treasury Department announced that they expected to lose around $29 billion from the financial crisis bailouts. More than half of the loss is a result of the bailout of the auto industry, with a considerable amount of funds also going to the departments housing finance program. Check out the following story about the announcement courtesy of NYTimes.com.

The Treasury Department expects to lose $29 billion on the federal bailouts stemming from the financial crisis, with most of the losses in its housing finance program and the auto rescue.

In a report released on Tuesday, the administration said it expected a $17 billion loss from its investments in General Motors, Chrysler and the auto finance companies, as well as a $46 billion loss from housing programs like the mortgage modification program known as the Home Affordable Modification Program.

The new figures, which include profits that offset some of the losses, come just as the Obama administration tries to wind down the bailout program known as the Troubled Asset Relief Program, or TARP. Last week, the government announced a plan to exit its investment in the insurer the American International Group.

Treasury officials have declared the bailout a success, emphasizing that much of the program’s money has been returned and that losses are now likely to be less than once expected. The cost, the report says, is far below the $350 billion the Congressional Budget Office once estimated.

“Because of the success of the program, TARP will likely cost a fraction of this amount,” the report said.

Continue reading at NYTimes.com…

Goodbye To TARP, But Good Riddance?

From Forbes.com:

The Troubled Asset Relief Program expires Sunday, meaning the Treasury Secretary can commit no more funds from the bailout legislation Congress passed two years ago.

Since then, the TARP, which gives the Secretary enormous power to spend up to $700 billion in basically any manner he pleases in order to buttress the economy, has been reviled as the mother of all bailouts. Among other things, it has been used to assist banks and insurers, bail out General Motors and Chrysler, and solve America’s foreclosure problem. It kicked off the anti-government spending movement, which has culminated in the success of many Tea Party candidates this year.

To be sure, TARP has had its faults, including a lack of transparency, failure to fix the housing market and mission creep. (It was supposed to be used to relieve banks of toxic assets, remember?) Read any of watchdog Neil Barofsky’s quarterly reports to Congress for an accounting of them.

But was TARP such a bad idea? Increasingly, it’s looking like the answer is “no.” The Treasury Department now estimates that losses to the economy from the TARP will be $50 billion at worst. By any measure, that’s a lot of money, but it’s not anywhere close to the $700 billion that TARP opponents have argued that taxpayers are responsible for. In fact, not even $400 billion in TARP money has been spent. From The New York Times Friday:

Whatever the final losses from housing, auto companies, A.I.G. or smaller banks, those will be offset by taxpayers’ profits from the big banks that have been the focus of their ire since 2008.

They have repaid their loans and Treasury has collected about $25 billion more from dividends and proceeds from the sale of warrants held as collateral, officials say. Many smaller banks hold on to their loans, however, reflecting their weakness and the desire of some others to keep the money given its advantageous terms. Scores are behind on dividend payments to the Treasury.

Postal Service Fine Without Taxpayers

As the US Postal Service continues to struggle with revenue problems, many taxpayers have become worried about the possibility of another huge bailout effort. However, according to the Washington Times representatives from the USPS have no desire to request a taxpayer-funded bailout.

It's election time in an era of polarization, but that doesn't excuse misleading the public with claims that the U.S. Postal Service seeks a taxpayer bailout ("Time for another government bailout," Commentary, Sept. 21). Nor does it excuse congressional interference with bargaining between the Postal Service and its unions. Unfortunately, the article by Rep. Darryl Issa fails on both counts.

The Postal Service doesn't seek a taxpayer bailout. It proposes to use a surplus in its pension account within the Civil Service Retirement System (paid for by postage rate payers and postal employees - its own funds, not taxpayer funds) to cover the cost of future retiree health benefits. Congress imposed the cost of pre-funding these future retiree health benefits - $5.6 billion per year - on the USPS in 2007. This requirement, which no other agency or business in America faces, is the major cause of the recent financial crisis at the USPS, not the Internet or the recession. Without the pre-funding requirement, the USPS would have been profitable two of the past three years.

The USPS also has plenty of flexibility to downsize - it has cut more than 100,000 jobs since the recession began in late 2007. The no-layoff contractual clause the congressman criticizes covers only workers with more than six years of service - leaving some 160,000 career and noncareer employees subject to layoffs.

Sadly, these problems are worsened by congressional inaction on resolving the unfair pre-funding burdens on the Postal Service. Yet Mr. Issa proudly vows to block legislation to address the situation.

Politicizing one of America's great institutions by getting Congress involved in the collective bargaining process is the last thing we should do. The Postal Service has not received a dime of taxpayer support in more than 25 years and offers the best, most affordable service in the world.

Republicans Introduce Bill to Prevent Euro Bailout

Republicans in Congress are trying to prevent a Euro bailout, and recently introduced a bill to make it a law not to help the European Union. The legislation presses European countries with financial struggles – such as Greece – to get fix their own financial problems instead of looking to American taxpayers for help.

"This legislation would require that countries, like Greece, cut spending and put their own fiscal house in order," says U.S. Congressman Mike Pence, backed up by other members of the House GOP, "instead of looking to the United States for a bailout. We face record unemployment and a debt crisis of our own, and American taxpayers should not be forced to bear the risk for nations that have avoided making tough choices."

The full release is below the fold, with the detail that the bill "does not permanently prohibit the IMF from lending" to the troubled counties. Nevertheless, Ezra Klein is not a fan of this proposal.

U.S. Congressman Mike Pence, Chairman of the House Republican Conference, joined Conference Vice-Chair Cathy McMorris Rodgers, Ranking Member of the House Appropriations Committee Rep. Jerry Lewis, Rep. Jeb Hensarling, and Rep. Kay Granger in introducing legislation today to stop U.S. tax dollars from being used by the International Monetary Fund (IMF) for bailouts for European countries. Rep. Pence released the following statement today as the European Bailout Protection Act was introduced:

“The American people are fed up with taxpayer-funded bailouts and deserve to know we are bailing out Greece and possibly other European countries. If the Obama Administration has its way, the U.S. will contribute to a nearly trillion dollar bailout of European countries with economic crises that are a direct result of wasteful government spending.

Continue reading at Washington Post.com…

No Greek Tragedy for the Mighty Dollar

From CNNMoney.com:

Now that Greece has finally gotten its bailout, are the days of the strengthening dollar over?

The greenback has gained about 8% against the euro so far this year. Many experts said a lot of this rally had to do with the notion that the dollar was now a much safer haven than the euro in light of the debt problems facing Greece, which is one of the nations that use the euro currency.

So it would be reasonable to think that the euro may finally get back on solid footing. Not so fast.

The dollar gained more ground against the euro Monday morning, the first day after the $146 billion Greek bailout was announced. And the dollar's strong run may not be over yet.

After all, even though it looks like Greece may be able to avoid actually defaulting on its debt; it's not as if the country is now fiscally fit. Plus, the bailout news was not a surprise. There's been speculation about an IMF/EU deal for months.

Wall Street's Bonus Baby Steps

After U.S taxpayers sacrificed billions of dollars to bail out Wall Street, the rescued financial institutions promised to cut executive bonuses and extravagant business expenses. However, data shows that many of the same companies that we bailed out earlier in the year, are planning to give out hefty bonuses in the first few weeks of the New Year. As this story on CNN Money.com explains, many of the major banks in this country are showing no signs of reducing their executive bonuses.

Under pressure to prevent another meltdown, Goldman Sachs (GS, Fortune 500) and Morgan Stanley (MS, Fortune 500) have been cutting back on cash bonuses and insisting on so-called clawbacks -- arrangements that allow companies to reclaim past bonuses when there is employee misconduct.

Yet for all their supposed reform-mindedness, the banks show no sign of pulling the emergency brake on the great compensation escalator.

A year after taxpayers saved the finance industry from collapse, the big banks will hand out billions of dollars in bonuses in the coming weeks -- at a time where unemployment tops 10% and many people are still losing their homes to foreclosures. To say this rankles in some quarters is an understatement.

"There is a need to show restraint considering the unusual circumstances of the past year or so," said Tim Smith, a senior vice president at socially responsible investment firm Walden Asset Management in Boston. "That's what you're not seeing right now."

Continue reading at CNN Money.com…

Fannie And Freddie Receive Unlimited Future Funds To Stay Afloat

From Huffington Post.com:

The government has handed its ATM card to beleaguered mortgage giants Fannie Mae and Freddie Mac.

The Treasury Department said Thursday it removed the $400 billion financial cap on the money it will provide to keep the companies afloat. Already, taxpayers have shelled out $111 billion to the pair, and a senior Treasury official said losses are not expected to exceed the government's estimate this summer of $170 billion over 10 years.

Treasury Department officials said it will now use a flexible formula to ensure the two agencies can stand behind the billions of dollars in mortgage-backed securities they sell to investors. Under the formula, financial support would increase according to how much each firm loses in a quarter. The cap in place at the end of 2012 would apply thereafter.

By making the change before year-end, Treasury sidestepped the need for an OK from a bailout-weary Congress.

While most analysts say the companies are unlikely to use the full $400 billion, Treasury officials said they decided to lift the caps to eliminate any uncertainty among investors about the government's commitments. But the timing of the announcement on a traditionally slow news day raised eyebrows.

FHA Shortfall Seen at $54 Billion May Lead to Bailout

The Federal Housing Administration may be asking taxpayers for a bailout within the next year, claims former Fannie Mae executive Edward Pinto. He asserts that the program will incur over $54 billion in unexpected losses in the next twelve months. For those of you who may not be familiar, the Federal Housing Administration helps finance mortgages with low down payments, but had been struggling to keep up with risky loans in an unstable housing market. Check out the following story about the announcement courtesy of Bloomberg.com.

“It appears destined for a taxpayer bailout in the next 24 to 36 months,” consultant Edward Pinto said in testimony prepared for a House committee hearing in Washington today. Pinto was the chief credit officer from 1987 to 1989 for Fannie Mae, the mortgage-finance company that is now government-run.

The FHA program’s volumes have quadrupled since 2006 as private lenders and insurers pulled back amid the U.S. housing slump, Pinto said. The jump has left the agency backing risky loans and exposed to fraud in a “market where prices have yet to stabilize,” he said.

Representative Scott Garrett, a New Jersey Republican, introduced legislation this month to boost the FHA’s minimum down payment to 5 percent from 3.5 percent to help shore up the agency’s insurance fund, a move that could add to the housing market’s burdens as it struggles to recover.

Bailouts Could Cost U.S. $23 Trillion

According to a new estimate from Politico.com the Federal bailouts from the past year could end up costing a staggering $23 Trillion. However, the author admits that this number is a “worst-case scenario.” Neil Barofsky, the special inspector general for the government’s financial bailout programs, also asserts that this total is unlikely and that a number of problems would need to emerge forcing the government to spend more. According to Barofsky, the government has spent about $2 Trillion so far.

Still, the enormity of the IG’s projection underscores the size of the economic disaster that hit the nation over the past year and the unprecedented sums mobilized by the federal government under Presidents George W. Bush and Barack Obama to confront it.

In fact, $23 trillion is more than the total cost of all the wars the United States has ever fought, put together. World War II, for example, cost $4.1 trillion in 2008 dollars, according to the Congressional Research Service.

Even the Moon landings and the New Deal didn’t come close to $23 trillion: the Moon shot in 1969 cost an estimated $237 billion in current dollars, and the entire Depression-era Roosevelt relief program came in at $500 billion, according to Jim Bianco of Bianco Research.

The annual gross domestic product of the United States is just over $14 trillion.

Treasury spokesman Andrew Williams downplayed the total amount could ever reach Barofsky’s number.

“The $23.7 trillion estimate generally includes programs at the hypothetical maximum size envisioned when they were established,” Williams said. “It was never likely that all these programs would be ‘maxed out’ at the same time.”

Chrysler Owes U.S. Tax Payers 350,000 Cars---That You'll Never Drive

In filing for bankruptcy, Chrysler will be able to avoid paying back a $7 billion bailout debt owed to US taxpayers. You can read a segment of an Examiner.com article examining the topic below, or read the full post here.

You know when the sentence begins with the words, "This revelation was buried within Chrysler's bankruptcy filings," it can't be good news.

And it certainly is not good news for the Obama administration or for Chrysler.

CNN is reporting that, "Chrysler LLC will not repay U.S. taxpayers more than $7 billion in bailout money it received earlier this year and as part of its bankruptcy filing."

The story goes on to detail how Chrysler recent bankruptcy was structured, and I fear you can probably guess the rest.

The rest being that a deal that was struck in some back rooms in Washington leaving the U.S. tax payer with pretty much nothing to show for the $7 billion bailout given to Chrysler so far.

"The reality now is that the face value [of the $4 billion bridge loan] will be written off in the bankruptcy process," said the official, who added that the 8% equity stake that Treasury will be receiving as part of the company's reorganization is meant to compensate taxpayers for the lost money," CNN goes on to report.

If you do the math, and as a journalist I must confess that I'm really bad at math, you'll eventually arrive at the number 350,000.

That's the number of Chrysler cars the Federal government could have purchased with $7 billion dollars---if you consider that each car costs $20,000.

It is hard not to wonder what 350,000 more car sales would have meant to Chrysler's business had the Fed decided to use the money to buy cars instead of underwrite questionable---no make that---bad loans.

It might have meant that Chrysler would not be in bankruptcy as 350,000 car sales would have represented a serious boost to its bottom line.

It probably would have have meant that President Obama would now be answering fun questions about that brand new orange Challenger sitting in the White House garage, instead of hard questions about why exactly his task force struck a backroom deal that lost tax payers billions, and why the details of that deal were, "buried within Chrysler's bankruptcy filings" and not discussed openly and publicly.

The 10 Biggest Recipients of Federal Bailout Money

Over the past year, the federal government has given out a lot of money to both struggling financial companies and American automobile makers. With huge executive bonuses in the news and more money being given out to huge corporations, the American taxpayers are beginning to become more skeptical of federal bailouts. To help the readers of my blog gain a better understanding of these “bailouts” I have put together the following list of the top 10 biggest recipients of federal bailout money.

#1 AIG

$170 to $240 billion

The American International Group (AIG) makes the top of my list because the insurance giant has received numerous bailouts, which many experts claim totals over $170,000,000,000. In addition, it is predicted that AIG could need as much as $75 billion more in federal funds over the next few years. This could put their total at upwards of a quarter of a billion dollars.

AIG got into trouble when their credit ratings were downgraded and the company ran out of liquid assets. The federal government first gave AIG a credit of $85 billion in exchange for a nearly 80% stake in the company. The company later received another bailout from the government, which sparked public outrage after it was learned that AIG had given out massive bonuses to a group of high paid executives. Many Americans felt that taxpayer money should not be going to companies rewarding executives

In spite of all the negative publicity, the government and President Barack Obama have stood behind AIG. They argue that the insurance giant is so deeply intertwined with the financial system that its failure could ruin the country’s already shaken economy. According to reports, AIG provides insurance to more than 30 million policyholders and 100,000 different entitles, including small businesses, government entities, pension funds, and multi national corporations.

#2 Citigroup

$55 to $351 billion

Citigroup is an American financial services company based out of New York. They are estimated to have the world's largest financial services network with over 12,000 offices across the globe. As of this date, they have received two TARP payments from the federal government totaling $50 billion. In addition, the government has also assured up to $301 billion of the company’s assets. Meaning the company could end up receiving over $300 billion dollars of taxpayer money.

So far, the government has had to issue one $5 billion payment to Citigroup because of the asset guarantee. When Citigroup reported huge losses earlier in the year they had to absorb losses totaling $29 billion, but received $5 billion from the Treasury and another $10 billion from the FDIC.

So far, Citigroup has avoided making headlines for executive bonuses. The company claims they are using their funding to expand the flow of credit in the economic crisis and to get loans out to eager borrowers. They even formed a committee to oversee the way their TARP money is being spent.

#3 Bank of America

$45 to $163 billion

According to the Charlotte Business Journal Bank of America Corporation is the world’s largest financial services company in the world. However, along with most of the country’s financial institutions they needed support from the federal government. They were given two payments for stock ($25,000 on October 28, 2008 and $20,000 in January 2009), and received a federal asset guarantee of up to $118 billion. However, it is also important to note that they were paid an estimated $6 billion by AIG during the financial crisis (AIG reportedly used TARP money to make this payment).

Bank of America did receive some lash-back for their decision to acquire Merrill Lynch with out citing their lack of immediate proper funding. However, the federal government had little choice but to offer Bank of America more assistance, as thousands of businesses and taxpayers depend on the bank.

#4 JPMorgan Chase

$25 billion

JPMorgan Chase & Co. is considered one of the oldest financial services firms in the world, but began having asset problems along with all the other banks in the country. On October 28, 2008 they were given $25 billion as part of the government’s initial TARP payments. The company has stayed relatively off the radar since receiving the funds, except for when it was learned that they had made tentative plans to purchase new corporate jets after receiving bail out money. However, they quickly put out a statement announcing that all of their federal debts would be repaid before any jets were purchased.

#5 Wells Fargo

$25 billion

Wells Fargo & Co. is widely considered the “The World's Safest US Bank” after they became the only US bank to be rated AAA by the S&P. Not surprisingly, the bank has had what many are calling one of the most successful bailout stories of the top 10. After receiving federal aid, Wells Fargo made a recent announce to its investors to expect a profit of $3 billion for the quarter. While at face value this seems like a great victory for the banks and economy, some skeptics point out they may not be out of danger. Wells Fargo bought out Wachovia, inheriting some mortgage loans and a lot of government regulation, not to mention missing information and unclear capital numbers. Only time will tell if the acquisition will hurt or help the giant financial institution.

#6 General Motors

$13.4 to $18.4 billion

General Motors Corporation (GM) and Ford have both been in the news about the money they received from the government. However, GM is the only of the automakers to make our top 10 list. So far, they have received an estimated $13.4 billion in bailout funds, and have already requested more help. It’s also important to note that the $13.4 billion does not include an estimated $5 billion that the federal government announced they would be GM and Ford for “for payments to suppliers from participating auto companies,” under a new Auto Supplier Support Program.

As I mentioned before, GM had requested additional funds from the government but President Obama’s administration rejected their proposal. They did agree to provide GM with working capital for the next 60 days, but said that during that time they would “be working closely with GM to produce a better business plan.”

#7 The Goldman Sachs Group, Inc.

$10 billion

The Goldman Sachs Group had managed to avoid controversy, until they recently began selling their stocks to help repay the $10 billion they received from the TARP program. While most onlookers would consider this a good thing, many financial experts are afraid this early repayment will overpressure other banks to repay their debt prematurely. The main concern is that if too many banks follow suit, it could “harm the recovery effort”. Of course, Goldman Sachs benefits from this early repayment by freeing themselves of government restrictions, including spending and bonus caps.

#8 Morgan Stanley

$10 billion

Morgan Stanley is a New York based financial services provider, and unlike many other TARP recipients, they have been very open about when and how their TARP money is being used. They claim to have used some of the money towards their capital account, while additional funds were lent to Verizon Wireless.

Another smart move by Morgan Stanley is their upfront admittance that their debt will not be paid back any time soon. CEO John Mack publicly stated that, “as much as we’d like to give the money back and just focus on not having government involvement, being totally a public entity, we think and I think that it’s the wrong time to do it now... The reason that money was put in the hands of these banks is to help get us through this very difficult time in financial markets and a very difficult time in the economy.”

#9 Merrill Lynch & Co.

$10 billion

Merrill Lynch was amongst the banks hit hardest by the market crash last year. The company received a TARP from the federal government in the amount of $10 billion before Bank of American bought them out at the end of 2008. The company was also received an estimated $6 billion from AIG, who claims to have used TARP money to make the payment.

In addition to the controversy around their Bank of America buy out, Merrill Lynch has also made headlines for huge bonuses paid to executives. Unlike AIG however, Merrill Lynch has not made the list of bonus recipients public, so the American taxpayers really have no idea of knowing if TARP money was used for the bonuses or not.

#10 PNC Financial Services Group

$7.5 billion

PNC is the country’s 5th largest bank, and they first made a big splash one the bailout scheme when they acquired the Cleveland bank National City (NCC) in October of 2008. PNC used some of the money given to them through the TARP program to make the acquisition, and many called this transaction the first real “test” of TARP funds since no one was quite sure how the deal would work out. As of January of 2009, PNC claims that they did see losses immediately after their purchase, but did not think they would need any more TARP money to pull through the recession.