The bastardisation of the Tarp continues.
Fresh from bailing-out Citi, reports have it that Paulson will today announce the Tarp’s use for a bailout of Mainstreet proper (someone has to assure all those GM, Chrysler and Ford cars get bought after all). According to the WSJ:
The lending facility, which will be operated by the Federal Reserve, is expected to provide loans to investors who want to buy securities backed by credit cards, auto loans and student loans, these people said. Treasury will contribute between $25 billion to $100 billion to the facility from its $700 billion Troubled Asset Relief Program.
And if all goes well,
While the initial focus will be on consumer loans, the facility could eventually be expanded to cover all manner of assets, including mortgages.
Finally addressing, sort of, the issue the Tarp was created to resolve in the first place.
But if you thought those figures were big, Bloomberg continues its campaign to reveal the real cost of government intervention in the market. The news agency tabulates Washington has now engaged in providing as much as $7.76 trillion on behalf of American taxpayers, or half the value of everything produced in the nation last year. Bloomberg explains:
The commitment dwarfs the plan approved by lawmakers, the Treasury Department’s $700 billion Troubled Asset Relief Program. Federal Reserve lending last week was 1,900 times the weekly average for the three years before the crisis. When Congress approved the TARP on Oct. 3, Fed Chairman Ben S. Bernanke and Treasury Secretary Henry Paulson acknowledged the need for transparency and oversight. Now, as regulators commit far more money while refusing to disclose loan recipients or reveal the collateral they are taking in return, some Congress members are calling for the Fed to be reined in.
Bloomberg arrives at the $7tn figure after taking data from the Fed’s lending activities, the Treasury programmes and facilities operated by the Federal Deposit Insurance Corp.
Breaking it down:
The bailout includes a Fed program to buy as much as $2.4 trillion in short-term notes, called commercial paper, that companies use to pay bills, begun Oct. 27, and $1.4 trillion from the FDIC to guarantee bank-to-bank loans, started Oct. 14. William Poole, former president of the Federal Reserve Bank of St. Louis, said the two programs are unlikely to lose money. The bigger risk comes from rescuing companies perceived as “too big to fail,” he said. ‘Credit Risk’ The government committed $29 billion to help engineer the takeover in March of Bear Stearns Cos. by New York-based JPMorgan Chase & Co. and $122.8 billion in addition to TARP allocations to bail out New York-based American International Group Inc., once the world’s largest insurer. Citigroup received $306 billion of government guarantees for troubled mortgages and toxic assets.
The Treasury and the government continue to reassure these are all “speculative investments”, not losses – just in case you were confused.
Related links:
Wanted $1000,000,000,000 to bailout the financial system – FT Alphaville
Terpology – FT Alphaville
_____