Fact vs. Bailout Fiction: "Way Too Early" to Talk Profits, Bianco Says
Posted Sep 02, 2009 07:30am EDT by Aaron Task
finance.yahoo.com
What began as a small story about returns on TARP paybacks in The Wall Street Journal last week has now become a full-fledged media frenzy:
As Banks Repay Bailout Money, U.S. Sees a Profit (NY Times, Aug. 30)
Bailouts Yield Returns Amid Risk (WSJ, Sept. 1)
Fed makes $14bn profit on crisis loans (FT, Aug. 31)
Meltdown 101: Earning profits on bailout money (AP, Aug. 31)
Setting aside the media's pack mentality, the issue is whether this is something to rejoice or an example of "bailout propaganda," as Matt Taibbi declared on his blog.
It's "way too early to tell" about the government's return on the bailouts, says Jim Bianco, president of Bianco Research. "By these measures we're making all kind of profits and the taxpayer is benefiting tremendously. You'd think we should have a crisis ever year if this is what's going to happen -- the government could get rid of the deficit this way." (He's kidding folks.)
At best, these reports present an incomplete picture of the government's various and sundry programs, Bianco says. He compares talk of bailout "profits" to the banking industry's focus on operating profits in 2007 at the exclusion of "one-time" losses in their subprime portfolios.
First, few of these stories focus on the risks the government took in order to generate these alleged returns. To his credit, The WSJ's Jon Hilsenrath did detail the risk-reward calculation. For example, while the FDIC has collected $9.3 billion in "profits" in fees from banks that have issued government-guaranteed debt, it has about $307 billion of exposure to those bonds and faces over $21 billion in losses (so far) due to bank failures.
But the big bailout dollars - and the big risks - reside at the Federal Reserve, whose balance sheet has ballooned to over $2 trillion in the past year, and Treasury, where the exposure includes:
$248.8 billion in aid to AIG and TARP banks.
$80 billion for GM, Chrysler and related suppliers and finance arms.
$400 billion in aid to Fannie Mae and Freddie Mac, and another $5 trillion in explicit guarantees for the GSEs.
"Until we can see they're going to pay back the government, it's way too early to tell" whether the bailouts were a financial success or not, Bianco says.
Meanwhile, Bianco has a "tinfoil hat" theory on why there's a sudden rash of stories about the bailout "profits": Bloomberg recently won a court victory in its efforts to force the Fed to reveal the recipients of its special lending programs. The Fed has until Sept. 30 to comply, pending its appeal.
"It's curious: right when they're supposed putting out bad news about their balance sheet, here comes a rash of stories saying 'oh no, it's exactly the opposite'," Bianco says, suggesting Taibbi's "propaganda" critique is spot on. |
