Wednesday, June 10, 2009

TARP Making Profit: True

This is bound to drive Republicans using the "Obama is a socialist" attack. Politifact checked President Obama's statement that the federal government made a profit off the loan money being repaid by banks.

"Several financial institutions are set to pay back $68 billion to taxpayers," he said. "And while we know that we will not escape the worst financial crisis in decades without some losses to taxpayers, it's worth noting that in the first round of repayments from these companies the government has actually turned a profit."

Politifact found the answer to be completely true.

The ten major companiesd are repaying the Treasury Department $1.8 billion in paid dividends from prefered stocks.The short answer is the Treasury became a shareholder and the companies are now repaying with profits from shares. 600 companies have paticipated in stocks and the federal government has received $4.5 billion.

The treasury borrowed money for the TARP loans at a low interest. The loans were less than the returning dividend payments. Simple math equates that to a profit. The federal government has warrants to by stocks as these companies start to rebound. The government would get in as the stock goes up. The Fed would buy enough stocks to boost the price and makes the stocks desirable for investors. The Fed gets out when the stock peaks. More potential profit.

I love how the Heritage Foundation attempts to spin this against Obama.

David John, a senior research fellow at the conservative Heritage Foundation, said that while it's accurate to say the government is turning a profit on these specific transactions, it was so costly to create the TARP that "you can't say the overall program is a money-maker."

John recently wrote a paper at the Heritage Foundation calling for "Allowing American workers to save and invest a portion of their income in accounts." That is the 2005 DOA Bush plan to have people invest money that would be going into Social Security, instead, into the stock market. Conservatives have been trying to kill Social Security by defunding the program.

Other experts disagree with John's economic on TARP. Short answer: the federal government will make a profit.

Still, the public too often tagged TARP as a bailout, said John Hall, a spokesman for the American Bankers Association.

"It's as if people thought money was handed out to banks," Hall said. "It wasn't. And it drove us nuts. The government has turned a profit. It made money plus some."

Bank analyst Bert Ely said while the government may end up losing money on investments in some financial firms, it's likely the entirety of the bank portion of the TARP will ultimately turn a profit.

The 5 percent paid in dividends on preferred stock purchased by the Treasury will certainly outpace the interest rate on money borrowed to finance the program, he said. And the warrants could also prove profitable.

What are conservative going to call Obama if the TARP plan succeeds? Successful Socialist has a nice ring but not a lot of political punch.

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At June 10, 2009 10:28 PM , Anonymous Jim Johnson said...

For what it's worth: TARP is a Bush Administration program.

At June 10, 2009 10:33 PM , Blogger Michael Hussey said...

Very true Jim. George W. Bush saved the economy. If only Obama was as socialist as Bush. Sigh.

At July 21, 2009 3:35 PM , Anonymous Anonymous said...

For what it is worth, before anybody crows too hard about the TARP you may want to check how the overall TARP is doing.

The TARP Has a $159 Billion Loss!!

At February 26, 2010 11:30 PM , Anonymous Anonymous said...

It's most amusing how leftists blast TARP as a bailout, then want credit for it when they find out it is making a profit.

Much like giving Obama credit for a victory in Iraq...

Obama has also claimed credit for an alleged 5.9% growth in GDP in the last fiscal quarter...

Anybody actually think that he will take credit for the downturns that will follow ???


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