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ECONOMIC COMMENTARY
Holly Glass Sturniolo
Director of Finance
TARP - What?
Remember TARP? It's been a while, and little has been said lately, but it's still out there. TARP - Taxpayers Aren't Receiving Profit...
Going into its fifth year, TARP has had some success, but still languishes in some pronounced failures. Of the initial $700 billion authorized in bailouts, about $418 was actually disbursed and $133 billion is still owed by companies that received funding - (Interest and Principal) representing nearly 32%.
"The gyrating stock market has slowed the Treasury Department's efforts to sell off its stakes in 458 bailed-out companies, the report says. They include insurer American International Group Inc., General Motors Co. and Ally Financial Inc.
If Treasury plans to sell its stock in the three companies at or above the price where taxpayers would break even on their investment - $28.73 a share for AIG, $53.98 for GM - it may take a long time for the market to rebound to that level, the report says. AIG's shares closed Wednesday at $25.31, while GM ended at $24.92. Ally isn't publicly traded any longer.
It will also be challenging for the government to get out of the 458 companies as the market remains volatile and banks struggle keep afloat in the tough economy."
Four companies with larger bailouts have repaid their loans, including: Bank of America Corp., Citigroup Inc., Chrysler Group LLC and Chrysler Financial, the automaker's old lending arm.
It would appear that the US Treasury Department continues to release information on expected gains from the TARP program without providing projected loss information or related expenses as well. An interesting phenomenon given AICPA regulations for companies require this information be provided to shareholders. Failure to provide this information is partially the cause of the problem in the first place!
"A June statement detailing the government's exit from Chrysler Group LLC cited the automaker's repayment of more than $11.2 billion and said that Treasury was unlikely to fully recover the remaining $1.3 billion of funds committed to the company."
This represents a 10% loss without an interest write-off.
"In a report dated February 6, 2009, the Congressional Oversight Panel concluded that the Treasury paid substantially more for the assets it purchased under the TARP than their then-current market value. The COP found the Treasury paid $254 billion, for which it received assets worth approximately $176 billion, for a shortfall of $78 billion. The COP's valuation analysis assumed that "securities similar to those issued under the TARP were trading in the capital markets at fair values" and employed multiple approaches to cross-check and validate the results. The value was estimated for each security as of the time immediately following the announcement by Treasury of its purchase. For example, the COP found that the Treasury bought $25 billion of assets from Citigroup on October 14, 2008, however, the actual value was estimated to be $15.5, creating a 38 percent (or $9.5 billion) subsidy."
Again, generally accepted accounting principles would not seem to apply, which gives rise to contradiction, and gives the impression of fraud.
"Some in the financial industry were not using the money for the reasons the money was injected. Others further abused investors after the TARP legislation was passed by telling investors their money was invested in the federal TARP financial bailout program and other securities that did not exist. Neil Barofsky, Special Inspector General for the Troubled Asset Relief Program (SIGTARP), told lawmakers, "Inadequate oversight and insufficient information about what companies are doing with the money leaves the program open to fraud, including conflicts of interest facing fund managers, collusion between participants and vulnerabilities to money laundering.
In its October 2011 quarterly report to Congress, SIGTARP reported "more than 150 ongoing criminal and civil investigations." SIGTARP had already achieved criminal convictions of 28 defendants (19 had already been sentenced to prison), and civil cases naming 37 individuals and 18 corporate/legal entities as defendants. It had recovered $151 million, and prevented $553 million going to Colonial Bank, which failed.
The first TARP fraud case was brought by the SEC on January 19, 2009, against Nashville-based Gordon Grigg and his firm ProTrust Management. The latest occurred in March 2010, with the FBI claiming Charles Antonucci, the former president and chief executive of the Park Avenue Bank, made false statements to regulators in an effort to obtain about $11 million from the fund."
The bottom line is that the system seems to be wracked with flaws and misguided accounting principles for which there is no excuse. If we are going to loan money and bail out companies for their ineptitude and corrupt accounting, it would seem appropriate that we would use correct accounting principles in our own analysis and reporting... Unfortunately, each site would seem to provide a different bottom line, a different prospective, and a different set of values, costs, gains, losses, and information.
Perhaps, what is good for the goose is not always good for the gander...
Sources: Bloomberg, Wikipedia, Associated Press
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