Economics

Where Your Tax TARP Dollars Are Going

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The Treasury Department has updated its list of financial institutions that are participating in the bailout's "capital purchase program," through which the feds buy preferred stock in a given bank.

In the $25 billion club are Citigroup (tough luck to those pink-slipped yesterday!), JPMorgan Chase, and Wells Fargo. Bank of America is in for $15 billion, and Goldman Sachs (thanks Hank!), Morgan Stanley, and Merrill Lynch are pulling $10 billion.

Read the rest of the list, two dozen-plus strong, here.

Update: The excellent website ProPublica, dedicated to "journalism in the public interest,"[*] is keeping a graphically rich, continuously updated tally of who's getting what, why, and how. According to their math, we're at $177 billion of commitments so far. Geez, that $700 billion toe tag on the economy just seems to be getting smaller every day, dunnit?

[*]: I should add that I don't believe in the "public interest," for the same reasons I believe that Szaszians, public-choice economics, and Marxists give a deep critique of "helping" institutions.

But the ProPublica website, which covers all sorts of topics ranging from government to media to national security, is really worth checking out.

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  1. “In the $25 billion club are Citigroup (tough luck to those pink-slipped yesterday!), JPMorgan Chase, and Wells Fargo. Bank of America is in for $15 billion, and Goldman Sachs (thanks Hank!), Morgan Stanley, and Merrill Lynch are pulling $10 billion.”

    I am shocked, SHOCKED, to find out that preferential treatment is going on here.

    Now I just want to watch Casablanca again. Thanks a lot H&R.

  2. If there’s going to be a bailout, buying shares like this instead of buying up “innovative” varieties of worthless bonds is probably a smarter move.

  3. joe’s back, and I’m agreeing with him. Maybe the vaca has made him less cranky.

  4. I’d like to see some kind of system put in place where the government’s ownership doesn’t translate into voting-power. Some kind of independent authority staffed by accountants who manage the portfolio strictly as an investment.

  5. “I’d like to see some kind of system put in place where the government’s ownership doesn’t translate into voting-power. Some kind of independent authority staffed by accountants who manage the portfolio strictly as an investment.”

    They already have something like that. It’s called private enterprise.

  6. Through the magic words “private enterprise,” we no longer have to think about the best way for the government to manage the several hundred billions of dollars worth of assets it’s buying.

    Thank you for that.

  7. Joe, if these shares were worthwhile as assets at the price was buying them – ie, if they could be thought of as investments – real people would have already bought them.

  8. if these shares were worthwhile as assets

    investment bankers would be writing up the offerings.

  9. Nigel,

    “Worthwhile” to whom, and for what end? The government isn’t trying to put its borrowed money into the investment with the highest yield; it’s trying to inject liquidity into the financial system.

    I’m just saying that this is a way to do so that has a much better chance of producing a return which will allow them to make that money back, or at least come close. Maybe even turn some profit. Whether it’s the way to get the largest return on investment isn’t really the point.

  10. If there’s going to be a bailout, buying shares like this instead of buying up “innovative” varieties of worthless bonds is probably a smarter move.

    I still have deep, deep reservations about the government becoming part-owners of these firms.

    Aside from the whole “ownership-of-the-means-of-production” thing, you have created a very serious conflict of interest, especially in a highly regulated industry like financial services.

    I’d like to see some kind of system put in place where the government’s ownership doesn’t translate into voting-power. Some kind of independent authority staffed by accountants who manage the portfolio strictly as an investment.

    Kind of like the independent oversight that Fannie and Freddie had, eh?

    And that still doesn’t address the conflict of interest that is inherent in a regulator owning a stake in one of the firms it oversees.

  11. I still have deep, deep reservations about the government becoming part-owners of these firms.

    Aside from the whole “ownership-of-the-means-of-production” thing, you have created a very serious conflict of interest, especially in a highly regulated industry like financial services.

    Which is a fair point, and is the reason I’m talking about setting up a system to wall them off from politics, if this is to be done.

    Kind of like the independent oversight that Fannie and Freddie had, eh?

    Fannie and Freddie never had independent oversight. They were always conceived as being vehicles to allow the government to influence the housing market. That’s why they were set up.

    And that still doesn’t address the conflict of interest that is inherent in a regulator owning a stake in one of the firms it oversees.

    Yes, it does. Surely you are familiar with the term “blind trust,” which is often used to address problems of conflict-of-interest. A structure that allows the account managers to do their jobs without interference from the political branches would do exactly that – address the conflict of interest you mention.

    Now, how to do it, that’s the tricky part.

    I trust you’ll now explain to me that the thing you are philosophically opposed to doing is also, lo and behold, completely impossible to accomplish for practical reasons.

  12. Look, the deed is done, RC. They’re buying the shares.

    You’re either arguing that the government should attempt to wall off the management of these assets from politics, or you’re arguing that it should make no attempt to do so.

    I know which one I’d choose.

  13. Where Your Tax TARP Dollars Are Going

    That would be future Tax TARP” dollars. At the moment, taxes for TARP aren’t being extracted at gunpoint from anybody, because they’re borrowing it all!

    That’s the marvel. There’s a shortage of capital for banks, so it’s to be provided by the government. Unfortunately, the government doesn’t have any capital lying around either. So they borrow it from other people/institutions who have capital.

    I’m sure those people with capital to lend to the government–who only plans on lending it to a bunch of banks ASAP–would get better rates lending to the capital-strapped banks themselves…

    …that is unless those with capital (arguably the savvier among us at this point) appreciate the fact that this is all a bad investment proposition. Now future tax receipts bonds, that’s where the safe money is!

    Oh well! At least they aren’t printing it all yet.

  14. Yes, it does. Surely you are familiar with the term “blind trust,” which is often used to address problems of conflict-of-interest. A structure that allows the account managers to do their jobs without interference from the political branches would do exactly that – address the conflict of interest you mention.

    It doesn’t, joe. The danger here isn’t that the acount managers need to be protected from the regulators. Its that the regulators need to be protected from those who now have a stake in these firms, to prevent favorable treatment of the government-owned firms/unfair treatment of the competitors of the government-owned firms.

    And if you seriously believe that anyone managing tens or hundreds of billions of dollars of government-owned assets can be protected from politics, and, perhaps, more importantly, that policy won’t be set to favor and protect the government’s stake, your naivete is, well, touching.

    Fannie and Freddie were supposed to be independent of political interference as well. That’s why they were set up the way they were, as (quasi)-private organizations. But we all know politics corrupted them, and how they corrupted politics. There is no reason to believe this will play out any differently.

  15. You’re either arguing that the government should attempt to wall off the management of these assets from politics, or you’re arguing that it should make no attempt to do so.

    No, I’m saying it shouldn’t have been done at all, and will certainly have bad consequences.

  16. RC,

    The danger here isn’t that the acount managers need to be protected from the regulators. Its that the regulators need to be protected from those who now have a stake in these firms, to prevent favorable treatment of the government-owned firms/unfair treatment of the competitors of the government-owned firms.

    OK, gotcha. It’s not your concern that the people managing the govenrment’s assets will vote its shares to make Citibank hire a left-handed black lesbian little person as its next CEO, but that the SEC will let Citibank slide on some regs in order to boost the value of their stock.

    And if you seriously believe that anyone managing tens or hundreds of billions of dollars of government-owned assets can be protected from politics, and, perhaps, more importantly, that policy won’t be set to favor and protect the government’s stake, your naivete is, well, touching.

    Ah, the bullshit wordliness card. Man, how can anyone who thinks we should try to address a problem be so naive as it think it could ever be done? I’m so smart and experienced! The fact that I don’t WANT the thing I’m saying to happen has nothing to do with it.

    What exactly do you find so difficult to understand in the phrase “Now, how to do it, that’s the tricky part?” Is it the “how” section, or the “tricky” section? No, but seriously, I’m so naive that I think the problem can be solved between Barack Obama and Robert Reich during a squash match.

    Fannie and Freddie were supposed to be independent of political interference as well. No, they weren’t. They were specifically set up for the purpose of influencing the mortgage market in a manner that Congress directed them to. They were intended to manage their portfolios for the purpose of steering that market in politically-desireable directions. It wasn’t corruption for them to put poitical goals given to them by Congress ahead of the profit motive; that was the reason they were created.

    No, I’m saying it shouldn’t have been done at all, and will certainly have bad consequences.

    Too late. It’s done. Any commentary about the issue of walling off the assets from political interference, other that support for doing so and consideration of different ideas for how to accomplish that, is just so much wanking.

  17. It wasn’t corruption for them to put poitical goals given to them by Congress ahead of the profit motive; that was the reason they were created.

    In fact, to the degree that they become corrupted, it was in the opposite direction – they began pursuing profit, market share, and stock value as ends unto themselves.

  18. joe,

    I know which one I’d choose.

    How about “Wait 6 months then sell them all on the free market at whatever price you can get”?

    The government wont get ALL (or even most of) its money back, but it will avoid the conflicts of interest (hopefully they can go 6 months without screwing anything up).

  19. joe,

    is just so much wanking.

    When things go awry, maybe that “wanking” will prevent the same mistakes from being made in the future. Probably not, but wanking does have its own personal benefits.

  20. wanking does have its own personal benefits.

    QFT

  21. The fact that I don’t WANT the thing I’m saying to happen has nothing to do with it.

    No, joe, the fact that I don’t see how it can’t turn into a colossal train wreck is why I don’t want it to happen.

    Seriously, we are coming off one colossal traine wreck caused by the intermingling of politics with the finance sector, and the solution is to make an even more widespread intermingling of politics with the finance sector?

    I know you scoff at the notion that the government can’t hold hundreds of billions of securities without conflicts of interest and various abuses of power, but I would love to see a single example of when a government has held this much stock without conflicts of interest, etc.

    I’m making a prediction of serious problems down the road based on experience. I don’t know what you’re basing your prediction of no problems down the road on.

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