February 06, 2009

TARPing me to death...

Elizabeth Warren is one of the few lawyers (Harry's the other) I actually trust. Her work on the abuses of credit card companies has been essential to shed light on and stop their most egregious packages. Her committee's report on TARP is out and the result is that that US got back $66 for every $100 it invested in these entities. Which conflicts with other reports.

Oh, and it makes me mad as hell.

Now, these aren't actual loses and the government is already receiving dividend payments. So the question becomes, why is the discount so high for the government? There is a simple explanation that the media are mostly ignoring, mainly that yelling fire in a crowded theater is dangerous. This money had to go to weak players and strong players on roughly equal terms. If that hadn't happened, people would have known easily which banks were weak and which were strong, leading to runs on banks that would have resulted in the US taking over some large banks and paying out far more than TARP.

My personal opinion... I would question this valuation based on risk, especially since there is no way government can lose on this. If the banks default, government takes them over and privatizes them down the road. Government always wins. This is, of course, independent of the fact that Buffett won't get tax payments in perpetuity. Government has an incentive to keep these firms afloat.

And we all have a pretty big incentive to keep the banking system working.

While I have no real problem with the government making something on these investments, I want them closer to breaking even than massive profits. I know there will be those who disagree with me, but take a moment, set aside your hatred for bankers, financiers and investors and think about what it would be like to have your government acting like a merchant bank or vulture investor with your tax dollars.

Posted by mcblogger at February 6, 2009 10:39 AM

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