US risked $4 trillion, and won, but sent bad signals: panel
"The programs' income will likely exceed their direct expenditures"
The government's Troubled Asset Relief Program (TARP) risked $4.5 TRILLION in taxpayer money in the last months of the Bush administration.
Good: "The programs' income will likely exceed their direct expenditures," and "played a major role in calming financial markets," reports the Congressional Oversight Panel, headed by Harvard Prof. Elizabeth Warren and watchdogged by US Rep Jeb Hensarling, R-Texas, today. Statement here.
Bad: Besides exposing the nation to what could have been ruinous losses, the programs "created significant moral hazard that distorts the marketplace," the panel added. Bankers now think they'll be rescued if things get out of control!
Full report here. Partial summary on Page 6:
1) The Treasury's Asset Guarantee Program guaranteed up to $5 billion in asset for Citigroup, and has generated $3.8 billion in fees, with no losses to date. The Panel says Bank of America also qualified, but hasn't used the program; and asks why the government played favorites by just picking those two.
2) Treasury's Temporary Guarantee Program for Money Market Funds backed $3.22 trillion in money market accounts, has now expired, yielded $1.2 billion in fees, at zero cost, and left the panel to wonder why we bother regulating depository banks, if non-banks can sell these accounts, pay higher rates of interest, and still get bailed out.
3) The Federal Reserve's Asset Guarantee Program guaranteed an "undetermined" (!) level of Citigroup assets and collected $57 million in fees. BofA got this offer, too.
4) The Federal Deposit Insurance Corp.'s Temporary Liquidity Guarantee programs, now protecting $307 billion in bank and mortgage debt, have raised $9.6 billion in fees at a comparatively trivial cost of $2 million in debt losses.
5) FDIC's Asset Guarantee Program, also tailored to Citigroup (and BofA which didn't use it) guarantees up to $10 billion in assets, has generated fees of $2.7 billion - these must be pretty risky assets - and hasn't cost a dime.