Bailout Rate of Return: -1,096%
By Barry Ritholtz - January 29th, 2009, 9:46AM
Time magazine looks at the TARP, and does some quick number crunching.
Since the Tarp was jammed through in October, Treasury has invested $165 billion into the nation’s eight largest banks.
Those same financial firms are now worth $418 billion less than they were four months ago. CBO calculates the taxpayer’s preferred shares are worth $20 billion less.
The government’s annualized rate of return on its investment in the nation’s largest banks is -1,096%.
As Time snarkily notes, even Bernie Madoff only lost 100%!
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Source:
Why Your Bank Is Broke
Stephen Gandel
Time, Jan. 29, 2009
http://www.time.com/time/business/article/0,8599,1874702,00.html
January 29th, 2009 at 9:50 am
But, but, but……I thought that CNBC hack Liesman said only recently that we the taxpayer had “already made money” on the TARP program? Could have lied or got his facts wrong? I think not!
January 29th, 2009 at 9:55 am
ROTFL!
DOH!
January 29th, 2009 at 10:04 am
When Putin looked into the eyes of George W Bush he saw an IDIOT !
Now he is calling out Obama, Geithner, and BB.
Putin called out the United States directly in his speech at Davos, calling the current economic state a “perfect storm.” “I just want to remind you that, just a year ago, American delegates speaking from this rostrum emphasised the US economy’s fundamental stability and its cloudless prospects,” he said. “Today, investment banks, the pride of Wall Street, have virtually ceased to exist. In just 12 months, they have posted losses exceeding the profits they made in the last 25 years. This example alone reflects the real situation better than any criticism.”
“Excessive dependence on a single reserve currency is dangerous for the global economy,” Putin said, calling for multiple reserve currencies in addition to the dollar.
“The time for enlightenment has come,” he went on. “We must calmly, and without gloating, assess the root causes of this situation and try to peek into the future.”
January 29th, 2009 at 10:04 am
On a related note: housing numbers that just came out look increasingly gruesome. Shocker.
January 29th, 2009 at 10:32 am
This makes just as much investment sense as spending $206k to save a $35k job! ($825B for 4M jobs!)
January 29th, 2009 at 10:44 am
Would you loan the Treasury funds to buy failed assets at inflated prices? I wouldn’t. So, where does the Treasury gets the funds from to inject bad bank with? This is the question that will drive the performance in all other markets. Buying failed assets at above market prices seems to be a sure fire recipe for certainty of 1,000% losses.
January 29th, 2009 at 10:52 am
articles like this are just dumb!! It if fine to be against the TARP but to put stuff out like the govt has already received a -1000% return is irresponsible and very misleading.
January 29th, 2009 at 10:56 am
“We have a financial system that is run by private shareholders, managed by private institutions, and we’d like to do our best to preserve that system.” Read that twice, “we’d like to do our best to preserve the system.”
What? Barry, you don’t like the new math on Capitol Hill…
Here is the new political math: “Obama’s change = Geithner’s preservation.”
gee baby, ain’t it wonderful?
January 29th, 2009 at 11:10 am
The Wall Street Journal reports that “government officials seeking to revamp the U.S. financial bailout have discussed spending another $1 trillion to $2 trillion to help restore banks to health, according to people familiar with the matter.” While earlier this week, Fortune magazine reported a number as high as $4 trillion.
Obama just nationalize instead and save billions of dollars of taxpayer money or else you’ll be gone next election !
January 29th, 2009 at 11:11 am
As much as you hate TARP, I would think you’d be just as interested in criticizing Time’s shoddy math. One doesn’t add up negative nominal returns to come up with an annualized rate. That’s just stupid.
If I lose 1% a day, I haven’t lost 365% at the end of the year. Losses compound, just like gains. You multiply, you don’t add.
January 29th, 2009 at 11:23 am
Wall St. Total Return on Hank Paulson: 100,000 %
Wall St paid him $700 million over his career – he paid them back with $700 Billion TARP.
Wall St total return: 100,000%
Call T-A-R-P for what it is: G-I-F-T.
And, since Barry mentioned Madoff – does anyone else thinks Paulson should be Madoff’s cellmate?
January 29th, 2009 at 11:49 am
km4:
What was Putin’s suggestion? Invade Mexico and claim the northern part as our own? Cut off coal shipments to Canada?
The Russian history lately hasn’t been stellar.
And I hope he wasn’t suggesting that communism would create more jobs than the west has under democracy…yes, there are problems in river city, but there would have been far less growth under anyone’s five year plan…
January 29th, 2009 at 12:19 pm
Nope wrong.
I heard that little spaz Howard Dean tell Becky Quick we will make money, besides that’s just on paper, us stupid tax papers haven’t sold yet.
January 29th, 2009 at 12:40 pm
I agree you can’t have greater losses than -100%. At -1,096% somebody missed math 101.
As for Madoff, I normally oppose death penalty, but in this case he would serve as an example to the financial sector that you don’t f%^k with other people’s money.
January 29th, 2009 at 12:50 pm
Annualized rates of return cannot be less than -100%. Go ahead, try using the XIRR or IRR functions on Excel, and run the calculation.
Also, comparing the government’s preferred stake to the loss of the market capitalization is not a sound was to run a total return calculation.
Finally, Madoff didn’t lose 100%. He took money in and paid people out, minus whatever was raked off. If we run an IRR calculation on it(should we ever get good figures), he may have had a negative single digit IRR, but that will still be fatal in the long run as returns are over-reported and withdrawals come in.
January 29th, 2009 at 12:56 pm
The preferred shares are worth less than when Paulsen purchased them. As bad as that is, it is probably far better than the alternative, which would have been to overpay for the toxic assets, and then sit on them for 10 years (or more).
And that’s probably where Obama’s going to go. The government will play all kinds of games with “mark to model” accounting in order to hide the true size of the deficit (and national debt).
If the government is going to play games with “mark to model”, we might as well let the banks do it (it’s cheaper that way).
January 29th, 2009 at 1:11 pm
Hey Bruce N Tennessee
Not condoning Putin or his policies but he has some good points.
“Excessive dependence on a single reserve currency is dangerous for the global economy”
“The time for enlightenment has come,” he went on. “We must calmly, and without gloating, assess the root causes of this situation and try to peek into the future.”
This article was written 2.5 yrs ago and since then we have seen all the financial malfeasance from Wall St, The Fed, The Treasury and the Bush admin.
The case for a global currency
http://www.iht.com/articles/2006/08/03/opinion/edwade.php
FRIDAY, AUGUST 4, 2006
There is a rising tide of opposition around the world to America’s unilateral assertion of its national interests. But few realize that for the United States to become a more responsible country, the world economy needs to move from the current U.S. dollar standard to a global currency.
U.S. dominance rests not only on military superiority and on the size and productivity of its economy, but also on the fact that most international transactions are denominated in U.S. dollars and more than 60 percent of world foreign exchange reserves are held in U.S.-denominated assets, like U.S. Treasury bills.
The problem for the rest of the world is that the U.S. dollar standard encourages the United States to be careless in its monetary and fiscal policies.
January 29th, 2009 at 1:12 pm
“The government’s annualized rate of return on its investment in the nation’s largest banks is -1,096%.”
Well, see now, that’s just because they didn’t go BIG enough! (but they will)
love,
Captain Upside
January 29th, 2009 at 1:57 pm
Bailouts! Bailouts! Bailouts!
My Stimulus Bill…
Send $1,000,000 to every frik’n person in the US that files taxes for 2008. Let the Banks, Mortgage Companies, Auto Companies, etc… fend for themselves. Total cost… maybe $130 trillion.
Meanwhile, I’ll stick my $1M in the bank, go buy a distressed property and maybe a new Chevy. I know this has many flaws but couldn’t be as bad as the compounding mess that’s happening now. I’m going fishing!
January 29th, 2009 at 3:37 pm
We already have an international currency. It’s called Gold.
January 29th, 2009 at 4:26 pm
Good luck now getting any. Most places are out in small amounts, retail level.
January 29th, 2009 at 5:08 pm
Wouldn’t we have done better if we’d piled a stack of dollars many billions high and just incinerated them? At least it could have staved off some global warming.
But really, isn’t a -1,000% or so return something like what we’ve gotten out of our adventures in Iraq and Afghanistan?
At least there, we transformed the dollar bills to bunker buster bombs and then incinerated them. We bombed Afghanistan to the stone ages with those suckers. Of course, it was a fairly short trip.
January 29th, 2009 at 9:26 pm
“I agree you can’t have greater losses than -100%. At -1,096% somebody missed math 101.”
If they could do math, they would not be a reporter.