Timothy Geither writes on five TARP myths in WaPo. Here's No. 2:
2. The TARP was a gift for Wall Street that did nothing for Main Street.
Financial crises matter not because they hurt banks and bankers. They matter because they kill jobs, businesses and the value of retirement savings. To protect Main Street from the damage caused by a financial crisis, you must first put out the financial fire. That is precisely what the government did.
In the fall of 2008, the Bush administration injected nearly $250 billion into our largest financial institutions and provided a guarantee, for a fee, to help them continue to operate. Those emergency actions, taken at a time of grave danger for the U.S. economy, were absolutely essential. Without them we would have seen a broader collapse and losses of millions more jobs and trillions more dollars in income and savings.
Those initial investments, which came with limited conditions designed to protect taxpayers, helped stop the free fall of the financial system. But by the time President Obama took office, credit markets were still severely distressed and the economy was contracting at an accelerating rate.
So we shifted strategy to recapitalize the financial system with tough conditions and with private money, not public funds. And we focused resources directly on the victims of the crisis, rather than on the institutions that helped cause it. After inheriting nearly $300 billion in commitments, mostly to large companies, we directed resources toward lowering mortgage rates, reducing foreclosures and helping restart the credit markets for consumers and small businesses.
In addition to the nearly $300 billion in tax cuts in the Recovery Act for working Americans and businesses, the new initiatives on which we spent TARP funds were for broad-based programs to lower lending costs and mortgage payments. And where we inherited commitments to individual institutions -- such as AIG and auto companies -- we acted to ensure that those companies were fundamentally restructured so they could survive without government assistance and ultimately repay the taxpayer. More at WaPo
Oh, and TARP was started by GWB and championed by republicans:
5. The TARP was the centerpiece of a strategy by President Obama to assert more government control over the economy.
The TARP was created by a conservative Republican president, who was also forced by the crisis to take over Fannie Mae and Freddie Mac, lend billions to the automobile industry and guarantee money-market funds. And the TARP was championed by the same Republican congressional leaders who are in office today. They deserve more credit for the courage they showed than they seem willing to accept now.
The Treasury Department said Monday it will begin selling the stake it owns in Citigroup Inc., which could result in a profit to the government of about $7.5 billion.
The government received 7.7 billion shares of Citigroup in exchange for $25 billion it gave the bank during the 2008 credit crisis. It said it will sell the shares over the course of this year, depending on market conditions. .... Citi, one of the hardest hit banks during the credit crisis and recession, received a total of $45 billion in bailout money, one of the largest rescues in the program. Of the $45 billion, $25 billion was converted to the government's ownership stake in the bank.
The Treasury paid $3.25 a share for its stake.
New York-based Citi repaid the other $20 billion it owed the government in December. MSNBC
The president is also expected to discuss the sweeping financial regulatory reform package that the administration is currently trying to push through Congress during Monday's scheduled meeting.
Officials said that the list of attendees has not yet been finalized, but that it is likely that executives from some of the nation's biggest banks will be present.
The extent to which banks have been willing to lend has remained a focal point for Washington, after the U.S. government pumped billions into the banking sector over the past year in an effort to get the economy back on track.
Consumers and small businesses in particular contend that loans are still tough to come by. Banks maintain that they are lending even as the appetite for new loans has dropped off. CNN
In other financial news, Timothy Geithner discusses the TARP exit strategy in a letter to Nancy Pelosi:
Dear Madam Speaker:
I am writing to update you on the status of the Obama Administration’s financial policies, including programs initiated under the Troubled Asset Relief Program (TARP) established by the Emergency Economic Stabilization Act of 2008 (EESA), the results they have achieved, the challenges ahead, and our plan for exiting TARP.
These policies are working. When the Obama Administration took office, the financial system was extremely fragile and the economy was contracting sharply. The Administration’s financial and economic policies have helped to shore up confidence in our financial system. Credit is starting to flow again to consumers and businesses, and the economy is growing. Further, private capital is replacing public capital in our major institutions.
As a result of improved financial conditions and careful stewardship of the program, losses on TARP investments are likely to be significantly lower than previously expected. We now expect a positive return from the government’s investments in banks. These banks will soon have repaid nearly half of the TARP funds they received. We also expect to recover all but $42 billion of the $364 billion in TARP funds disbursed in FY2009. Further, we plan to use significantly less than the full $700 billion in EESA authority. As a result, we expect that TARP will cost taxpayers at least $200 billion less than was projected in the August Mid-Session Review of the President’s Budget.
But significant challenges remain. Too many American families, homeowners, and small businesses still face severe financial pressure. Although the economy is recovering, foreclosures are increasing, and unemployment is unacceptably high. Businesses are still cautious in the face of uncertainty about the strength of the recovery, and many small businesses face very difficult credit conditions. Although bank lending standards are starting to ease, many categories of bank lending continue to contract. This contraction has hit small businesses very hard because they rely heavily on such lending, and do not have the ability to substitute credit from securities issuance. Commercial real estate losses also weigh heavily on many small banks, impairing their ability to extend new loans. Read the rest here
1. Helping Small Businesses Expand Investment, Hire Workers and Access Credit
First, we're proposing a series of steps to help small businesses grow and hire new staff. Over the past 15 years, small businesses have created roughly 65 percent of all new jobs in America. These are companies formed around kitchen tables in family meetings, formed when an entrepreneur takes a chance on a dream, formed when a worker decides it's time she became her own boss. These are also companies that drive innovation, producing 13 times more patents per employee than large companies. And it's worth remembering, every once in a while a small business becomes a big business -- and changes the world. 2. Investing in America’s Roads, Bridges and Infrastructure
Second, we're proposing a boost in investment in the nation's infrastructure beyond what was included in the Recovery Act, to continue modernizing our transportation and communications networks. These are needed public works that engage private sector companies, spurring hiring all across the country. Already, more than 10,000 of these projects have been funded through the Recovery Act. And by design, Recovery Act work on roads, bridges, water systems, Superfund sites, broadband networks, and clean energy projects will all be ramping up in the months ahead. It was planned this way for two reasons: so the impact would be felt over a two-year period; and, more importantly, because we wanted to do this right. 3. Creating Jobs Through Energy Efficiency and Clean Energy Investments
Third, I'm calling on Congress to consider a new program to provide incentives for consumers who retrofit their homes to become more energy-efficient, which we know creates jobs, saves money for families, and reduces the pollution that threatens our environment. And I'm proposing that we expand select Recovery Act initiatives to promote energy efficiency and clean energy jobs which have been proven to be particularly popular and effective. It's a positive sign that many of these programs drew so many applicants for funding that a lot of strong proposals -- proposals that will leverage private capital and create jobs quickly -- did not make the cut. With additional resources, in areas like advanced manufacturing of wind turbines and solar panels, for instance, we can help turn good ideas into good private sector jobs. WH Blog
The administration is considering several new steps to boost hiring, including using money from the Troubled Asset Relief Program, incentives for homeowners and businesses to make buildings more energy efficient and more spending on roads, bridges and other infrastructure projects. Obama plans to outline proposals next week in a speech from Washington. Bloomerg
It needs to be better communicated that the Bush administration and republican leadership caused MOST of the problems that Obama is dealing with. They want to destroy the economy and fix it. Ha! Republicans have a lot of gall and short memories. That's why Obama needs to keep reminding everyone that it was under republican watch that our economy melted down. Of course, everyone on both the left and the right hate Geithner for their own special reasons. That probably means Geithner's done a pretty good job. In fact, most economists say that he has. Conservative representative Kevin Brady of Texas (of course) asks Geithner if he's going to step down. What I wonder is what our republican congressional leaders do all day? They certainly aren't part of the solution. They only seem to operate from a political perch:
Republican representative Michael Burgess of Texas questions Geithner:
Sen. Dick Lugar, republican from Indiana, discusses international finance with Geithner:
Larry Summers speaks to the Council of Foreign Relations. Consumer and business sentiment is improving and Americans feel like the country is on the right track, Summers said. But he warned, there are always false dawns during financial crisis. Summers says we need stronger regulations to prevent future financial meltdown.
Executive pay caps were stripped from the bill, but their salaries are now subject to an even harsher provision, thanks to Sen. Chris Dodd.
Apparently, Obama's economic advisors warned against adding Dodd's provision to the bill, but since Timothy Geithner wasn't tough enough on companies who received bailout money, the provision was added at the last minute. Now, all companies that receive bailout funds have to abide by the new rules, not just the companies that get the money going forward. And there's more:
NYT: A provision buried deep inside the $787 billion economic stimulus bill would impose restrictions on executive bonuses at financial institutions that are much tougher than those proposed 10 days ago by the Treasury Department.
The provision, inserted by Senate Democrats over the objections of the Obama administration, is aimed at companies that have received financial bailout funds. It would prohibit cash bonuses and almost all other incentive compensation for the five most senior officers and the 20 highest-paid executives at large companies that receive money under the Treasury’s Troubled Asset Relief Program, or TARP.
The stimulus package was approved by the House on Friday, then by the Senate in the late evening.
The pay restrictions resemble those that the Treasury Department announced this month, but are likely to ensnare more executives at many more companies and also to cut more deeply into the bonuses that often account for the bulk of annual pay. The restriction with the most bite would bar top executives from receiving bonuses exceeding one-third of their annual pay. Any bonus would have to be in the form of long-term incentives, like restricted stock, which could not be cashed out until the TARP money was repaid in full.
Some are complaining about a "brain drain." If the kinds of brains we're draining are the kind that will do anything for money, I say drain away! I'm sure they'll find someone to work for a lousy $500,000 or whatever.
But some experts on executive compensation warned that the restrictions could unleash unintended consequences, like encouraging banks to increase salaries to make up for diminished incentive pay. Even then, they warned, banks were likely to lose top talent.
“These rules will not work,” James F. Reda, an independent compensation consultant, said on Friday. “Any smart executive will (a) pay back TARP money ASAP or (b) get another job.”
The differences between Geithner's provisions and Dodd's:
The biggest difference between Mr. Dodd’s provision and the Treasury rules is that the new stimulus provision would apply to any company that either has received money or will receive money in the future under the Treasury’s financial rescue program. By contrast, the plan announced by Mr. Geithner would apply only to companies that receive federal money in the future.
The revised rules do not impose a formal cap on executive compensation, unlike the Treasury proposal. Under that plan, banks were barred from paying more than $500,000 in salary until they repaid the TARP funds to the government. (Banks were permitted to offer bonuses in restricted stock.) Senator Dodd’s rules, however, go a step further, prohibiting banks from awarding restricted stock to 25 top executives equal to more than one-third of their annual cash compensation until the banks have repaid all the money owed.
Something ain't right. Nothing's right in financial "services." It almost seems prudent to let the banking system explode.
CNN: Top executives from eight of the nation's largest financial institutions told Congress Wednesday that they are continuing to lend, even as banks have come under severe scrutiny in recent weeks about their use of billions of dollars in government aid.
But skeptical legislators weren't buying it.
At a closely-watched hearing before the House Financial Services Committee, CEOs from such embattled firms as Citigroup (C, Fortune 500) and Bank of America (BAC, Fortune 500) defended their actions since taking hold of $165 billion last fall, adding that without government assistance, credit would be even harder to obtain.
"We are still lending, and we are lending far more because of the TARP program," Bank of America Chairman and CEO Ken Lewis said in his prepared remarks.
Representative Maxine Waters questions CEOS who increased credit card rates after receiving bailout money:
See Tim Kaine and Obama's remarks about the consequences of falling bridges here.
Swamp: Today, while House and Senate leaders attempt to hammer out an agreement on an economic stimulus that came out of the House at $819 billion and came out of the Senate at $838 billion -- and conflict in many key ways -- Obama will take a short hop down the road to Springfield, Va., using a construction site there to tout job creation.
The Virginia governor and chairman of the Democratic National Committee, Tim Kaine, will join the president in Springfield.
Tomorrow, Obama will be in Peoria, Illinois to celebrate Lincoln's birthday. He will also visit the Caterpillar plant. Meanwhile, the house and the senate are munching on the two versions of the stimulus bill trying to turn it into one and live at CNN, Barney Frank's Financial Services committee is grilling bank executives about misspent money. Obama at construction site in Virginia:
LAT: Neil J. Barofsky, special inspector general for the Troubled Asset Relief Program, said his intent was to shed more light on the workings of the widely criticized program. He already has lobbied successfully to have all TARP award agreements and vendor contracts posted publicly online.
"We want to bring transparency to areas that previously were dark so the American people, who have invested so much, can see what's going on," Barofsky said.
He was to release a 188-page report today on his efforts since he was appointed two months ago. The report says Barofsky also will require senior bank executives to certify under criminal penalty their plans for complying with the executive pay limits that the Obama administration will impose on TARP recipients. Read the executive pay rules here.
CNN: In prepared remarks before the Senate Finance Committee Wednesday morning, Geithner called on senators to support President Obama's proposed stimulus plan. The comments come as the Senate panel prepares to consider whether to confirm Geithner as the nation's top financial officer.
"Senators, the ultimate costs of this crisis will be greater, if we do not act with sufficient strength now," Geithner's testimony read. "In a crisis of this magnitude, the most prudent course is the most forceful course."
In his testimony, Geithner - who is currently the president of the Federal Reserve Bank of New York - also advocated "aggressive action to address the housing crisis and to get credit flowing again," though he offered no specifics.
The comments come a day after President Obama took office, only to confront the worst-ever Inauguration Day selloff in the stock market.
Geithner says the bailout, that everyone affectionately calls TARP (troubled asset relief program), will have taxpayer protections.
Geithner said a revised TARP plan will contain "tough conditions to protect the taxpayer and the necessary transparency to allow the American people to see how and where their money is being spent and the results those investments are delivering."
The comments echo those made recently by another top Obama economic aide, National Economic Council chief-designate Larry Summers.
Geithner apologizes for his "careless" and "unintentional" mistake of not paying his social security taxes.
President-elect Barack Obama is stepping up his lobbying blitz on Senate Democrats in an effort to win the release of the second half of the $700 billion financial industry bailout fund, as a resolution that would block the funding was introduced in the chamber.
One day after the Bush administration officially asked for release of the remaining $350 billion for the Troubled Asset Relief Program (TARP), at Obama’s request, the president-elect headed to Capitol Hill to push for the funds. During a meeting with Senate Democrats at their weekly luncheon, Obama planned to stress that there will be new restrictions on how the Treasury Department can allocate the remaining funds.
He is continuing a push that began Monday with phone calls to senators on both sides of the aisle touting his plan to make changes in the bailout program (PL 110-343). There has been widespread anger in Congress over how the Bush administration has used the funds — primarily to recapitalize banks and other financial institutions. Lawmakers on both sides of the aisle want Treasury to focus more on helping struggling homeowners and businesses, and they are demanding stronger accountability for how the money is spent.
The republicans are wary and that's a good thing -- this money must be properly spent and accounted for:
“So far the incoming administration has not said whether it plans to limit the funds to their original purpose or to expand their use to help specific industries,” Senate Minority Leader Mitch McConnell , R-Ky., said on the floor Tuesday. “The taxpayers are eager to hear the new administration’s plan, and so are Republicans in Congress. We’ll hear from the incoming administration soon, we’ll be happy to listen. They’ll have a receptive, albeit cautious, audience.”
Sen. Orrin G. Hatch , R-Utah, described broad dissatisfaction with the way the first $350 billion was spent. While saying he hadn’t decided yet how he’ll vote on releasing the remaining funds, he expects the second installment to be approved.
“There has been a lot of upset about that,” Hatch said. “I haven’t made up my mind about it. I suspect that it will pass.”
Inaugural rehearsal Obama told all the people complaining about the economic stimulus package to present better ideas if they didn't like what he was offering (and if you ask me, any opposition isn't serious, only political theater), so Paul Krugman did. Krugman, a recent Nobel Prize winner for his economics and NYT columnist, says the economic recovery package needs a bigger number:
First, Mr. Obama should scrap his proposal for $150 billion in business tax cuts, which would do little to help the economy. Ideally he’d scrap the proposed $150 billion payroll tax cut as well, though I’m aware that it was a campaign promise.
Money not squandered on ineffective tax cuts could be used to provide further relief to Americans in distress — enhanced unemployment benefits, expanded Medicaid and more. And why not get an early start on the insurance subsidies — probably running at $100 billion or more per year — that will be essential if we’re going to achieve universal health care?
Mainly, though, Mr. Obama needs to make his plan bigger. To see why, consider a new report from his own economic team. NYT
Obama has asked for the remaining TARP money and President Bush agreed to release it:
President-elect Barack Obama made his case to Congress for the release of $350 billion in remaining federal bailout funds.
A top Obama economic aide laid out new priorities for the use of the remaining balance under the Treasury Department's $700 billion Troubled Asset Relief Program, or TARP. In a letter addressed to the leadership of the Senate and House of Representatives, the Obama team strikes a note of urgency about winning the release of the funds.
"President-elect Obama believes it is not too late to change course, but it will be if we don't take dramatic action as soon as possible," says the letter, written by Larry Summers, director-designate of the National Economic Council. CNN
CNN Money has a pretty good summary of Obama's stimulus plan:
The plan proposes four main categories of measures: Investment in infrastructure, funds to cash-strapped states, expansion of safety net programs to protect the vulnerable, and tax cuts.
Infrastructure: The job creation machine A key aspect to the the stimulus plan is investment in the nation's infrastructure, which Obama expects to help create between 3 million and 4 million jobs.
Construction projects: Fund the rebuilding of crumbling roads and bridges. Obama wants to rebuild schools and modernize classrooms, labs and libraries.
Renewable energy: Double production of alternative energy in the next three years by modernizing 75% of federal buildings, investing in solar panels and wind turbines and by making cars more fuel-efficient. Obama also wants to modernize the nation's electrical grid with a new, cost-efficient "smart" grid that can deliver electricity from clean, alternative energy sources.
Broadband: Expand broadband Internet lines across rural and urban areas of America.
Health care records: Modernize the health care system by computerizing all of the nations' medical records in the next five years.
Science, research and technology: Invest in scientific innovation to create new industries, new jobs and medical breakthroughs.
State relief: Funding for budget shortfalls As states face budget shortfalls, Obama's plan seeks to help states pay for Medicaid and unemployment benefits.
State fiscal relief will be allocated to prevent increases in state and local taxes, provided they use the money to maintain essential services like police, fire, education, and health care.
Safety net: Helping the most vulnerable Obama proposes temporary programs to protect those most vulnerable to the effects of the recession.
Federal aid will go to temporary increases in food stamp spending, extensions and expansions of unemployment insurance, as well as health care coverage for unemployed.
Tax cuts: Breaks for businesses and the middle-class The president-elect will propose roughly $300 billion in tax cuts for individuals and businesses, adding up to about 40% of the total stimulus plan.
Middle-class tax cut: An estimated 95% of low-income and middle-class families will receive a refundable tax cut equal to $500 a year for individuals and $1,000 for couples. The credit would essentially be a payroll tax credit, with companies able to reduce the tax they withhold from employees' paychecks.
Small business write-offs: Obama would increase the amount of expenses small businesses can write off to $250,000 in 2009 and 2010 from the current $125,000 level.
Tax cuts for companies suffering losses: He would extend the so-called net-operating loss carryback to five years from two years. For businesses that book losses in 2008 and 2009, the provision allows companies to apply their losses to past and future tax bills so that they can get money back on taxes they've already paid or would otherwise have to pay. CNN
