US Treasury Dept Misled Citizens About TARP Funds (BOFA)...We Already Knew This

(Where did our tax money go?)

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TARP Watchdog's Report: Treasury Misled Public On Bailouts


The credibility of the government's $700 billion financial rescue program was damaged by claims a year ago that all of the initial banks receiving support were healthy, a new report contends.

Special Inspector General Neil Barofsky generally found that the government had acted properly in October 2008 as it scrambled to implement the Troubled Asset Relief Program to avert the collapse of the U.S. financial system.

But the report said that then-Treasury Secretary Henry Paulson and other officials were wrong to contend at an Oct. 14 press conference that all nine institutions receiving the first round of support – $125 billion – were sound.

"These are healthy institutions, and they have taken this step for the good of the economy," Paulson had declared at the time.

Barofsky said that the fact that Citigroup Inc. and Bank of America Corp. soon required billions in additional assistance highlighted the inaccuracy of that claim and raised questions about the whole effort. In addition, Merrill Lynch, which was also in the original nine, was in the process of being acquired by Bank of America because of its weakening financial position.

"Statements that are less than careful or forthright – like those made in this case – may ultimately undermine the public's understanding and support," the report said. "This loss of public support could damage the government's credibility and have long-term unintended consequences that actually hamper the government's ability to respond to crises."

In announcing the $125 billion in support to the nine institutions, Paulson had said that by building up the capital reserves of these healthy institutions, it would allow them to resume normal lending to businesses and consumers and help stabilize the financial system.

The nine institutions, including JPMorgan Chase & Co. and Wells Fargo & Co., held about 75 percent of the assets of the U.S. banking system at the time.

A joint statement from Treasury, the Federal Reserve and the Federal Deposit Insurance Corp. also referred to the nine institutions as healthy.

In commenting on Barofsky's report, the Federal Reserve generally supported the findings, saying "transparency and effective communications are important to restoring and maintaining public confidence, especially during a financial crisis."

But Assistant Treasury Secretary Herbert Allison Jr., who now heads the bailout program for the government, said that any critique of the announcements made a year ago should take into consideration the unprecedented circumstances facing financial regulators at the time.

"We believe the most important lesson from this history is that quick, forceful action prevented a catastrophic meltdown of the system," Allison wrote in his response to Barofsky's findings.

Barofsky serves as the auditor for the Troubled Asset Relief Program, a position that was created by Congress when it passed the $700 billion bailout fund on Oct. 3, 2008.

In his new report, Barofsky reviewed Paulson's decision to switch the focus of the program from buying up toxic assets from banks to spur new lending to direct injections of capital. The report cited developments that supported Paulson's contention that financial conditions were deteriorating so quickly that the government did not have the time needed to get the toxic asset program up and running.

The government just announced last week that two large investment funds have raised the minimum amounts needed to begin purchasing toxic assets from banks, a full year after Congress authorized the program.

The new report also provided information on interviews conducted with embattled Bank of America CEO Kenneth Lewis and Paulson and Federal Reserve Chairman Ben Bernanke over their conversations regarding Bank of America's acquisition of Merrill Lynch.

A congressional committee has investigated whether the government pressured Lewis, who announced this past week that he would leave Bank of America at year's end, to continue with the merger despite sharply rising losses at Merrill Lynch and to delay revealing those losses.

The report said that it had "found nothing to indicate Treasury and Federal Reserve officials instructed Bank of America executives to withhold the public disclosure of losses," the report said.



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Sources: Huffington Post, MSNBC, Google Maps

US Banks Awarded Bailout / Taxpayer Dollars Are Turning A Profit

MSNBC, NY Times----


(Although the FDIC insurance fund that guarantees bank deposits is running low, there are ways to make sure your money is safe. NBC's Tom Costello reports.)

Visit msnbc.com for Breaking News, World News, and News about the Economy

(Chair of the Congressional Oversight Panel Elizabeth Warren joins a Morning Joe panel to talk about how the TARP funds were spent and why America is not out of the woods yet.)

Visit msnbc.com for Breaking News, World News, and News about the Economy

Nearly a year after the federal rescue of the nation’s biggest banks, taxpayers have begun seeing profits from the hundreds of billions of dollars in aid that many critics thought might never be seen again.

The profits, collected from eight of the biggest banks that have fully repaid their obligations to the government, come to about $4 billion, or the equivalent of about 15 percent annually, according to calculations compiled for The New York Times.

These early returns are by no means a full accounting of the huge financial rescue undertaken by the federal government last year to stabilize teetering banks and other companies.

The government still faces potentially huge long-term losses from its bailouts of the insurance giant American International Group, the mortgage finance companies Fannie Mae and Freddie Mac, and the automakers General Motors and Chrysler. The Treasury Department could also take a hit from its guarantees on billions of dollars of toxic mortgages.

Welcome surprise

But the mere hint of bailout profits for the nearly year-old Troubled Asset Relief Program has been received as a welcome surprise. It has also spurred hopes that the government could soon get out of the banking business.

“The taxpayers want their money back and they want the government out of our banking system,” Representative Jeb Hensarling, a Texas Republican and a member of the Congressional Oversight Panel examining the relief program, said in an interview.

Profits were hardly high on the list of government priorities last October, when a financial panic was in full swing and the Treasury Department started spending roughly $240 billion to buy preferred shares from hundreds of banks that were facing huge potential losses from troubled mortgages. Bank stocks began teetering after Lehman Brothers collapsed and the government rescued A.I.G., and fear gripped the financial industry around the world.

American taxpayers were told they would eventually make a modest return from these investments, including a 5 percent quarterly dividend on the banks’ preferred shares and warrants to buy stock in the banks at a set price over 10 years.

But critics at the time warned that taxpayers might not see any profits, and that it could take years for the banks to repay the loans.

As Congress debated the bailout bill last September that would authorize the Treasury Department to spend up to $700 billion to stem the financial crisis, Representative Mac Thornberry, Republican of Texas, said: “Seven hundred billion dollars of taxpayer money should not be used as a hopeful experiment.”

So far, that experiment is more than paying off. The government has taken profits of about $1.4 billion on its investment in Goldman Sachs, $1.3 billion on Morgan Stanley and $414 million on American Express. The five other banks that repaid the government — Northern Trust, Bank of New York Mellon, State Street, U.S. Bancorp and BB&T — each brought in $100 million to $334 million in profit.

The figure does not include the roughly $35 million the government has earned from 14 smaller banks that have paid back their loans. The government bought shares in these and many other financial companies last fall, when sinking confidence among investors pushed down many bank stocks to just a few dollars a share. As the banks strengthened and became profitable, the government authorized them to pay back the preferred stock, which had been paying quarterly dividends since October.

But the real profit came as banks were permitted to buy back the so-called warrants, whose low fixed price provided a windfall for the government as the shares of the companies soared.

Despite the early proceeds from the bailout program, a debate remains over whether the government could have done even better with its bank investments.

If private investors had taken a stake in the banks last October on par with the government’s, they would have had profits three times as large — about $12 billion, or 44 percent if tallied on an annual basis, according to Linus Wilson, a finance professor at the University of Louisiana at Lafayette, who analyzed the data for The Times.

Why the discrepancy? Finance experts say the government overpaid for the bank assets it bought, because its chief priority was to stabilize the teetering financial system, not to maximize profit.

“Had these banks tried to raise money any other way, they probably would have had to pay quite a bit more than the government received,” said Espen Robak, head of Pluris Valuation Advisors, which analyzes the value of large financial institutions.

A Congressional oversight panel concluded in February that the Treasury paid an average of 34 percent more than the estimated fair value of the assets it received.

Of course, many finance experts suggest that the comparison is academic at best, because there is no way to know what might have become of the banks or the financial system as a whole had the government not acted.

“Taxpayers should heave a sigh of relief that the investment in the banks protected them from even more catastrophic losses from more bank failures,” said Aswath Damodaran, a finance professor at the Stern School of Business at New York University.

A more direct comparison of profits can be made with the investment performance of other governments that poured money into ailing banks last fall.

The Swiss government, for example, said last week that it had pulled in a handsome profit for taxpayers on a $5.6 billion bailout it gave to UBS, the troubled Swiss bank, at the height of the financial crisis in October. The government netted $1 billion on its investment, a gain equal to a 32 percent annual return.

“They are substantially in the money,” Guy de Blonay, a fund manager at Henderson New Star in London, said after the announcement.

More profits?

American taxpayers could still collect additional profits on their investments in two other big banks that have repaid their preferred stock but not their warrants: JPMorgan Chase and Capital One. They are expected to yield over $3.1 billion in gains for the Treasury in the next month or so, although the full tally will depend on how much they will pay to buy back their warrants.

And the government is owed about $6.2 billion in interest payments from banks that have not yet repaid their federal money.

But all the profits taxpayers have won could still be wiped out by two deeply troubled institutions. Both Citigroup and Bank of America are still holding mortgages and other loans that were once worth billions of dollars but whose revised values are uncertain. If they prove “toxic” because they cannot attract buyers, they could leave large holes in the banks’ balance sheets.

Neither bank is ready to repay its bailout money anytime soon, even though the banks’ stock prices have surged in the last month, leaving the government sitting on paper profits of about $18 billion between them.



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Sources: NY Times, MSNBC, Huffington Post, Google Maps

Will US Supreme Court Decide How Execs Are Paid?...To Hear Case This Fall

NY Times----


Last summer, Richard A. Posner, a federal appeals court judge, issued a surprising and prescient dissent. Executive pay is out of control, he said, and the marketplace cannot be trusted to rein it in.

Judge Posner is a conservative with libertarian leanings, and he is a leader of the law and economics movement associated with the University of Chicago. He often relies on economic analysis in his judicial decisions, and he believes that many questions are best sorted out by the marketplace.

But corporate America has insulated pay decisions from market discipline, Judge Posner wrote. “Executive compensation in large publicly traded firms often is excessive,” he added, “because of the feeble incentives of boards of directors to police compensation.”

The Supreme Court will hear the case this fall, as anger over huge bonuses paid to the executives of failing firms continues to grow. The case, Jones v. Harris Associates, may turn out to be the court’s first significant statement on the corporate culture that helped lead to the Great Recession.

The case arose from the enormous fees mutual funds pay to their investment advisers. A three-judge panel of Judge Posner’s court, the United States Court of Appeals for the Seventh Circuit, in Chicago, threw out a lawsuit brought by the investors in three Oakmark mutual funds who said the funds had overpaid their investment adviser, Harris Associates.

The panel decision, written by Chief Judge Frank H. Easterbrook, another leader of the law and economics movement, said the marketplace can be trusted to regulate fees. Judge Posner, dissenting from the full court’s decision not to rehear the case, said competition had not been effective in the keeping compensation under control.

Before last year’s market collapse, the mutual fund industry held more than $11 trillion in retirement and personal savings, and it paid advisers perhaps $100 billion in fees.

Mutual funds are odd enterprises. They are typically formed and run by their investment advisers, which select the fund’s board of directors. That board then negotiates the adviser’s fees.

Here is how Warren Buffett analyzed the situation in his 2003 letter to shareholders: “Year after year, at literally thousands of funds, directors had routinely rehired the incumbent management company, however pathetic its performance had been. Just as routinely, the directors had mindlessly approved fees that in many cases far exceeded those that could have been negotiated.”

The plaintiffs in the case before the Supreme Court claimed that Harris Associates had charged their funds twice as much as it charged its unaffiliated clients, like pension funds.

The Oakmark funds paid Harris Associates 1 percent of the first $2 billion in assets; independent clients were charged roughly one-half of 1 percent of the first $500 million. One percent of a billion dollars is nice work if you can get it.

“Mutual funds rarely fire their advisers,” Judge Easterbrook acknowledged. But, he continued, “investors can and do ‘fire’ advisers cheaply and easily by moving their money elsewhere.” A 2007 study from John C. Coates IV and R. Glenn Hubbard supported this conclusion, finding that mutual fund fees are kept in check by the movement of investors’ money.

But a brief supporting the plaintiffs filed in the Supreme Court by three economists, Ian Ayres, Robert E. Litan and Joseph R. Mason, questioned that study. New research in behavioral economics, the brief said, showed that most investors have a very poor grasp of rudimentary truths about probability and a disproportionate aversion to taking losses.

Mutual fund investors thus tend to look at past performance rather than fees. And they have a tendency to sell winning investments too early and hold losing ones too long.

Even if mutual fund investors could be counted on to act rationally, the economists’ brief said, they do not have ready access to the information they need to make sensible choices.

Instead of counting on investor behavior to keep fees in check, the brief concluded, courts should look to how much advisers charged independent clients like pension funds. A supporting brief from the federal government made the same point.

There is academic research to support this view, too.

“In contrast to mutual fund investors,” Diane Del Guercio and Paula A. Tkac wrote in a 2002 study , “pension clients punish poorly performing managers by withdrawing assets under management and do not flock disproportionately to recent winners.”

But Judge Easterbrook questioned the value of such comparisons. The two kinds of clients, he said, may have different needs. In its brief urging the Supreme Court not to hear the case, Harris Associates added that the Oakmark funds had outperformed “virtually every fund in their peer groups.”

Still, the tide seems to be turning toward skepticism about outsize compensation. In April, a month after the Supreme Court agreed to hear an appeal from Judge Easterbrook’s decision, the federal appeals court in St Louis allowed a suit against another investment adviser, Ameriprise Financial, to go forward. It was the first ruling in favor of unhappy mutual fund investors suing over advisers’ fees since Congress imposed a fiduciary duty on advisers in 1970.

Judge Easterbrook said the law had only a minor role to play, requiring no more than making sure that advisers “make full disclosure and play no tricks.”

But when public sentiment, economic research and even Judge Posner argue for more vigorous judicial examination of whether compensation is fair, the Supreme Court may just agree.



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Sources: NY Times, Flickr, Google Maps

23 North Carolina Banks In Trouble...Facing Serious Issues

Charlotte Observer, The State----

More than one-fourth of North Carolina’s 88 state-chartered banks are on N.C. regulators’ list of troubled institutions, a record number at least in recent history.

The tally of 23 troubled banks compares with six about two years ago, said Ray Grace, the N.C. deputy banking commissioner who heads bank supervision. Typically, he said, only two or three are on the list.

While acknowledging banks face serious issues, Grace doesn’t expect a run of failures.

“Most of our banks are in pretty good shape,” he said. “People don’t need to get panicky.”

The figures provide a rare look at the potent economic forces hitting banks. Job losses, dramatic declines in home sales and property values, struggling businesses and a deep recession have depressed demand for loans and made it harder for consumers and companies to repay loans, mortgages, credit cards and other debt.



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Sources: Charlotte Observer, The State, Huffington Post, Google Maps

No Bush Admin. Oversight Of TARP Funds...Banks Had A Field Day With Taxpayer's Money

Washington Post----


Many of the banks that got federal aid to support increased lending have instead used some of the money to make investments, repay debts or buy other banks, according to a new report from the special inspector general overseeing the government's financial rescue program.

The report, which will be published Monday, surveyed 360 banks that got money through the end of January and found that 110 had invested at least some of it, that 52 had repaid debts and that 15 had used funds to buy other banks.

Roughly 80 percent of respondents, or 300 banks, also said at least some of the money had supported new lending.

The report by special inspector general Neil Barofsky calls on the Treasury Department to require regular, more detailed information from banks about their use of federal aid provided under the Troubled Asset Relief Program. The Treasury has refused to collect such information.

Doing so is "essential to meet Treasury's stated goal of bringing transparency to the TARP program and informing the American people and their representatives in Congress about what is being done with their money," the report said.

In a written response, the Treasury again rejected that call. Officials have taken the view that the exact use of the federal aid cannot be tracked because money given to a bank is like water poured into an ocean.

"Although it might be tempting to do so, it is not possible to say that investment of TARP dollars resulted in particular loans, investments or other activities by the recipient," Herbert M. Allison Jr., the assistant Treasury secretary who administers the rescue program, wrote in a letter to Barofsky.

The Treasury has required 21 of the nation's largest banks to file public reports each month showing the dollar volume of their new lending.

The government so far has invested more than $200 billion in more than 600 banks under a program that began in October with investments in nine of the largest banks. Some banks have started to repay the aid even as others continue to apply for it.

Officials said the program intended to increase the capital reserves of healthy banks, allowing them to make more loans. From the beginning, however, the government invested in troubled banks -- most prominently Citigroup -- that had publicly announced intentions to reduce lending.

The government has also used the money to encourage mergers, such as Bank of America's acquisition of Merrill Lynch and PNC's deal for National City.

The report provides the most comprehensive look to date at how banks have used the money, based on voluntary responses to a March survey. Banks were asked to describe how they used the money, but they were not asked to break down the amounts.

One response, which the report described as typical, said the money had been used "to make loans to credit worthy customers, and to facilitate resolution of problem assets on our books."

Sources: Washington Post, Day Life

Ten Banks Approved To Return Taxpayer Tarp Funds....Giving Back The Bail Out Money

(CNBC reports the TARP repayments are not a sign that troubles are over.)



CNBC----

Ten of the nation's largest banks will be allowed to repay a total of $68 billion they received from the $700 billion TARP (Troubled Asset Relief Program) fund, created last fall during the height of the financial crisis.

Eight banks that took TARP money and passed last month's government "stress tests" confirmed that they received permission to repay the bailout funds.

They are: JPMorgan Chase, American Express, Goldman Sachs Group, U.S. Bancorp, Capital One Financial, Bank of New York Mellon, State Street and BB&T.

Morgan Stanley did not pass the government test, but on Tuesday said it had raised enough capital quickly and was approved to repay its TARP money.

Northern Trust was not among the 19 banks subjected to stress tests, but the company said it also had received permission to repay the bailout funds.

The banks have been eager to get out of the program to escape government restrictions such as caps on executive compensation.

Experts say allowing 10 banks to return $68 billion in bailout money illustrates some stability has returned to the system but caution that the crisis isn't over.

Appearing at the White House, President Obama called the repayments a "positive sign" but said this "is not a sign that our troubles are over—far from it."

Several of the banks repaying TARP saw their stocks rise in reaction, but the overall market was cautious.

"What that's telling you is that banks are spending all their money paying back the government and not doing what that money was intended to do, which was to stimulate the economy and lend that money," said Marc Pado, US market strategist at Cantor Fitzgerald.

Some worry the repayments could widen the gap between healthy and weak banks.

More than 600 banks nationwide have received nearly $200 billion in TARP money and 22 smaller banks already have repaid it.

"These repayments are an encouraging sign of financial repair, but we still have work to do," Treasury Secretary Tim Geithner said in a statement.

But some analysts questioned whether strong performance at the largest banks obscures greater dangers in the broader banking industry.

Smaller banks are still saddled with billions of dollars in risky commercial real estate loans, which could cause heavy losses depending on the speed of economic recovery.

And large banks continue to hold the toxic, mortgage-backed assets at the heart of the financial crisis.

Longtime bank analyst Bert Ely called the repayments a positive sign for the banking sector but not a reason to celebrate. He noted that three of the nation's biggest banks—Citigroup [C 3.41 -0.01 (-0.29%) ], Wells Fargo [WFC 25.66 0.27 (+1.06%) ] and Bank of America [BAC 12.06 --- UNCH (0) ]—are still tied to the bailout.

Even the banks permitted to repay the bailout funds are still dependent on government support, including debt guarantees from the Federal Deposit Insurance Corp. and credit lines from the Federal Reserve.

American Express and U.S. Bancorp said the repayments would reduce earnings for the quarter.

Other observers worried the repayments are a better deal for the banks than they are for the taxpayer.

"We all know why the senior executives want to repay this money: It's a burden to manage the TARP politics," said Mark Williams, a finance professor at Boston University and former Fed examiner.

Williams argued that it would be best for the banks to keep as much capital as possible until the economy turns around.

Unemployment continues to rise, he said, and that could mean more losses on loans and new bank failures.

Sources: CNBC, Flickr, Youtube