Tags: bank | rescue | losses

Bank Rescue: $104.2 Billion Lost So Far

By    |   Thursday, 23 Apr 2009 02:45 PM

A think tank estimates that the U.S. government has lost $104.2 billion on the Troubled Assets Relief Program (TARP) since last fall, on top of even greater red ink expected during the course of the Obama administration.

The U.S. Treasury Department is getting $66 in stocks and warrants for every $100 it contributes to TARP, with the biggest losses thus far being $30 billion for AIG, $25 billion for Citigroup, $3.9 billion for Wells Fargo.

The losses are calculated by computing the share price declines of those firms since October 7, 2008, the day the TARP was created.

The government is getting paid interest on these deals, "but if you don't get your principal back, who cares?" says Alex Brigham, executive director of Ethisphere, a research think tank that created a TARP Index to track taxpayer losses on the bailout plan.

The biggest gains for the government are $3.9 billion for Morgan Stanley and $1 billion for Goldman Sachs, according to a report in Business Week magazine.

As a result of the decline in Citigroup's stock since February, Ethisphere has marked down the value of the government's $45 billion investment in the bank.

Six weeks ago, Citi converted $25 billion in preferred shares the government had received into common equity, which translated to a 36 percent stake in the company. That, plus the conversion of an additional $27.5 billion of other publicly held preferred shares, diluted existing shareholders and generated a massive sell-off in Citi's shares.

The government's stake is now worth just $13 billion, estimates the TARP Index.

The calculated losses don't include the hit the government could take on assets that it has guaranteed for some of these banks, such as $300 billion of Citigroup's assets.

Presuming Citigroup's mortgage-backed assets turn out to be worth close to the value of the assets that other TARP recipients are now trying to sell for 30 cents to 50 cents on the dollar, the Obama administration will have to take a write-down of at least $150 billion on them once they're sold, says Brigham at Ethisphere. "They are scary numbers," he says.

The Obama administration's bailouts are similar to those handed out by the National Recovery Act (NRA), passed during the Great Depression and advocated by President Roosevelt, many experts believe.

The Supreme Court eventually found the NRA unconstitutional, cheering the business community of the late 1930s.

"Roosevelt’s desire to continue his experiments in central planning and government intervention would keep the Great Depression going for many years more. When we freed up the American economy after World War II, however, we encouraged competition, innovation, and the creation of new jobs. The Great Depression was over at last," writes Burton Folsom, Jr., in an article in The Freeman, a free market economics journal.

© 2017 Newsmax. All rights reserved.

 
1Like our page
2Share
StreetTalk
A think tank estimates that the U.S. government has lost $104.2 billion on the Troubled Assets Relief Program (TARP) since last fall, on top of even greater red ink expected during the course of the Obama administration. The U.S. Treasury Department is getting $66 in stocks...
bank,rescue,losses
462
2009-45-23
Thursday, 23 Apr 2009 02:45 PM
Newsmax Inc.
 

Newsmax, Moneynews, Newsmax Health, and Independent. American. are registered trademarks of Newsmax Media, Inc. Newsmax TV, and Newsmax World are trademarks of Newsmax Media, Inc.

NEWSMAX.COM
MONEYNEWS.COM
© Newsmax Media, Inc.
All Rights Reserved