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There’s No Good Reason for TARP to be so Troubling

By    |   Friday, 19 Nov 2010 12:17 PM

I’m not politically correct. I’m just correct.

Part of the reason that I achieved financial independence solely from investing isn’t because I am humble or politically correct.

People have the right to their own opinions but they don’t have the right to make up — or ignore — the facts.

Former President George W. Bush signed the $700 billion Troubled Asset Relief Program, or TARP, into law on Oct. 3, 2008, as banks suffered a liquidity crisis brought on by the collapse of the subprime-mortgage market. TARP recapitalized banks across the board — even ones that didn't need the extra money.

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If you listen to vote-hungry politicians and members of the media, you would think this “bailout” hurt the taxpayers and subsidized banks, like a corporate welfare program. (I wonder how many politicians or newscasters have achieved financial security solely from investing?)

Unlike farmers and “green” energy and oil companies who receive federal subsidies, banks were "lent" money at an interest rate and had to add warrants on top of the interest.

More than half the TARP banks have repaid the money and the Treasury Department has netted a $28 billion profit so far. The Federal Deposit Insurance Corp. also has brought in $12 billion on its guarantee program while the Federal Reserve "may have made" an additional $20 billion, according to Dick Bove, who incidentally isn’t a friend of the banking system but analyzes it.

The fact is that the Treasury’s investment in Citigroup alone could net the tax payers more than $20 billion, making it the most profitable deal the U.S government has ever engineered, strictly from a monetary point of view. The effect on jobs in the private and public sectors (and union pension funds) is enormous.

If we would have let all the banks become nationalized, the effect on pension funds and retirement accounts would have been disastrous.

I understand the moral-hazard argument and the free-market capitalism debate.

And, by the way, I never owned any financial shares in 2008. I had no personal financial stake in the game, unlike the millions of Americans whose 401(k) and pensions held a large stake of these stocks.

Just ask yourself this question: How many people reading this have ever borrowed money for a house or car or school loan? If you pay back your loan with interest, plus a share of your future earnings, are you a deadbeat?

About the Author: Bill Spetrino
Bill Spetrino is a member of the Moneynews Financial Brain Trust. Click Here to read more of his articles. He is also the editor of the Dividend Machine. Discover more by Clicking Here Now.

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BillSpetrino
I m not politically correct. I m just correct. Part of the reason that I achieved financial independence solely from investing isn t because I am humble or politically correct. People have the right to their own opinions but they don t have the right to make up or...
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2010-17-19
Friday, 19 Nov 2010 12:17 PM
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