In the past week there has been no shortage of political theater surrounding the Government's relationship with the banking system. It started with last weeks return of the TARP funds to the Treasury, with Secretary Geithner boasting to Congress that he "picked up a $45B check" from Bank of America. And now continues this week with the Obama administration taking a hardline posture against the banks with a scolding "60 Minutes" appearance on Sunday evening and a Whitehouse "woodshed" meeting first thing Monday with the heads of the largest banks (that some bank executives didn't even attend!). Below, Mike has chronicled some behavior on the part of the President that demeans both he and the Office. His advisors are putting him in a bad place. It's like a giant soap opera, embarrassing.
All of this time and attention is being applied due to what is perceived as a "bailout" of the banks by the Federal Government via the TARP. Many pundits have opined that the banks have had it easy and are making all kinds of money with all the "free money" provided by the Treasury and the Fed. And officials are boasting about the "return" they are getting from TARP "for the taxpayers". Here's a recent one from MSNBC that has all of the required drama and outrage and big numbers.
But what did the banks do with the TARP funds? What did they use them for? What assets did they buy with the funds? I can't find anything.
In FY 2009, the TARP withdrawals from the Treasury's account totaled about $365B, this was an equity investment by the Treasury into the banks. It started in 4Q CY 2008 and was effectively allocated by end of 1Q 2009. $365B is a big number and "can't hide". Since it was equity, it perhaps could even be leveraged. What happened to banks asset base from end of 3Q 2008 to the end of 1Q 2009? Let's look at the big asset classes from the Fed's latest z.1:
US Treasuries (No change)
MBS (Up $100B and subsequently back to unchanged)
Bonds (No change)
Stocks (Down $20B)
Total Bank Credit (DOWN!)
I think we have to conclude the trend was unchanged to down for bank assets all throughout the period that the TARP funds were being dispersed, and this trend has persisted if you follow it through to present. It doesn't look (to me) that the banks acquired any assets with the additional authority the TARP funds may have provided, and if anything were 'deleveraging' or reducing assets the whole time.
And now, the banks are just returning the TARP funds that they had no use for anyway. The only "use" I can think of is that one set of government regulators desired higher bank capital levels for a period of time, so another set of government appropriators provided the funds. This could have been easily avoided by a temporary waiver on capital levels while the banks reduced assets anyway.
This TARP controversy was and is a colossal waste of political time and energy. We could have avoided this soap opera, and instead had an intelligent discussion about how to truly increase output and employment in the economy.