Yesterday, I talked about the people that made TARP happen, now I want to talk about the companies that benefited from TARP.
- Citigroup: Citi got $50 billion from the government after a failed attempt to purchase faltering Wachovia. Despite being in really bad financial shape, they’ve hung on and are currently negotiating with the Treasury on how much money they need to raise to pay back the TARP money. Don’t be surprised if this happens by the end of the year. This doesn’t include the hundreds of billions in bad debt that the government is still backing.
- Wells Fargo: Wells Fargo got $25 billion from TARP after they beat out Citi for Wachovia. They were never in bad shape, relative to the other big banks. Purchasing Wachovia changed that somewhat, as Wachovia had, and still has, a lot of bad loans on their books. They haven’t paid back the money, yet, but like Citi they’re talking to the Treasury about it.
- AIG: AIG became the scapegoat of the entire financial meltdown. They weren’t responsible for the meltdown, they were simply big participants in a game they didn’t even know the rules to. This isn’t a defense by any stretch. They got $40 billion and a host of other perks. The company is in shambles, it still wouldn’t surprise me if they never pay back TARP and change their name to hide their past.
- Goldman Sachs: Goldman is the Wall Street poster-boy of success. They just got $10 billion, and to do that they had to become a “regular bank”. They basically used the money as a cheap loan and made some good money off the cash. They’ve already paid back TARP, and if there is such a thing as a stable Wall Street firm Goldman is it.
- JP Morgan: Like Goldman, JP Morgan Chase has done fairly well in the recession. They took $25 billion from TARP and have also paid it back. Much of their revenue comes from other income like investment banking and credit cards, and this diversity has helped them greatly.
- Bank of America: Initially, Bank of America seemed to be doing well. They bought Countrywide and Merrill Lynch. However things caught up to them, and combined with their purchases they needed $45 billion from TARP, second only to Citi. Bank of America is in the process of paying back their TARP money and their CEO is leaving at the end of the year.
There were other companies that benefited from TARP. Morgan Stanley, Capital One, American Express, and Discover all got TARP money as well.
So how did TARP work exactly? All of these companies literally sold stock to the federal government. The stock was preferred stock, which in most cases gives its holder priority over common stockholders, but not bondholders in the event of a bankruptcy. But because this is the federal government we’re talking about, bankruptcy doesn’t really matter much, and they would have probably had first dibs if one of these companies went under.
Did TARP make a profit? That isn’t really known yet. The likely answer is no. Though these banks did have to pay dividends to the government, they weren’t significant enough to offset the losses that came from guaranteeing loans from Bank of America and Citi. It’s also still possible that some of these companies will go under and not be able to repay their TARP.
Was TARP a success? I’d have to say that without a doubt it worked better than planned. It saved jobs, kept what was left of our financial system in order, and restored some confidence in the economy. Does that mean it should have been done? I don’t know. We’re still too early to make a final judgment on that.
What do you think? Who or what did I leave out of our look at TARP in 2009? Do you think it was a success? Should we have done TARP at all?
 By The Weakonomist |
The Weakonomist is the founder of Weakonomics. Clicking the picture of the puppy will tell you more about him. If you like what you're reading consider subscribing to the blog, following him on Twitter, and checking out the related posts below. Please consider a donation if you really enjoy Weakonomics. |
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Goldman won twice or maybe 3 times – direct TARP money – (1)
CDO payout from AIG bailout (2)
Highspeed trading from servers on the trading floors based on tremendous volume of share trading caused by massive injection of stimulus money into the banks and markets by the fed (3)
Record bonuses (win number 4!!!) these guys can’t lose and they are just doing the work of God, as we were reminded (“Blankfein went on record claiming that in being greedy he was actually doing the work of God” -http://www.hedgefund.net/publicnews/default.aspx?story=10645)
Makes me warm and tingly and proud to be an American when I see how rich and philanthropic the American Tax Payer is. I mean being able to bail out the banks & Wall Street traders that screw them constantly with exorbirant overdraft charges, arbitrary late fees, usury interest rates that make payday loans look reasonable, while the same taxpayers suffer under the burden of an 18% unemployment rate, reduced hours for those left working and a general declining standard of living. We make the Chinese look like pikers when it comes to doing more with less and we make the zealotry of self-flagelation of religions seem like a hangnail compared to the pointless pain we endure for the benefit of our financial masters. It just makes me all warm and fuzzy and proud to know I’m part of this great machine, and really motivates me to stock up on more canned goods and silver coins as I watch this slow motion train wreck destroy a once great nation.
If we are to learn anything of this disaster, we should be asking ourselves why did it happen when it did and who benefited most, for with those two pieces of information we can perhaps unravel who orchestrated the collapse and for what reasons.
Happy Holidays and may the New Year and decade bring us all a better world.