Inside Financial Services

What a Ridiculous Waste of Money

The Treasury's TARP sale cost taxpayers a bundle, and for no reason

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If you’re ever tempted to forget what a bunch of colossal idiots federal bureaucrats can sometimes be, the Treasury Department’s sale Wednesday of its TARP holdings in six banks is a useful, if infuriating, reminder. It’s as if the federal government has decided it’s a good idea to take tens of millions of dollars and set them on fire. These people are irresponsible dopes.

Here’s what happened: apparently because it’s getting tired of running the program, and with pressure from the White House, Treasury has hit on the bright idea of selling its remaining TARP holdings to the public rather than waiting for the banks themselves to redeem them. It held its first such auction Wednesday. On the block were $410.8 million in face amount of TARP preferred in six banks.

As it happens, I’m very familiar with all six banks on the list. The fund I manage even owns the common in two of them: Banner Corp. (BANR) and Seacoast Banking Corp. of Florida (SBCF). Yes, the banks encountered some severe credit problems during the recession (most small banks did). But they’ve dealt with their problems and are clearly on the road to recovery-as is evidenced by everything from their recent financial reports to the direction of their stock prices. All six banks figure to eventually repay their TARP investment in full. In fact, two of them were even permitted to participate in Wednesday’s auction!

So what did the geniuses at Treasury do? They sold their $410.8 million in preferreds–for $362 million, or an average 12% discount. Needless loss to taxpayers, therefore: $48.8 million.

W-w-why do bureaucrats pull bone-headed stunts like this? Forget about the size of the federal budget, $48.8 million is a lot of money–especially if all you have to do to get it is sit around and wait.

If I ran other people’s money in such an idiotic and irresponsible way, I’d get sued. The only reason I can think of that the Treasury went through with this misbegotten sale is that the people who work at the Treasury Department are getting bored running the program, and President Obama wants to have it wound down completely by the time the election arrives.

Sorry, that’s not good enough. These people are supposed to be public servants. Put aside politics for a minute: the very least we should be able to expect from the people who run the federal government is that they won’t decide to make their own lives easier by losing taxpayers money on purpose, for no reason. But that’s not what happened in this case. These people really are a colossal bunch of idiots.

What do you think? Let me know!

23 Responses to “What a Ridiculous Waste of Money”

  1. rivvir

    I wonder if you were against the gvt getting into tarp as much as you’re now against them getting out of it. I also wonder how the tarp investment in these banks you list made out overall. Did we make money, break even, or lose money overall in these specific banks. If either of the former two, made money or broke even while saving the banks from failure, i’d say the gvt did its job, which is not normally to get involved in pvt enterprise, and the sooner out of the picture there the better.

  2. Jimmie Johnson

    guest Posted On 3/30/2012 12:06:11 PM

    so you don’t believe in free markets, and/or the ability of markets to better value a security than the US Treasury? strange. also, there is a funny thing called time value.

    guest – I drive cars for a living so take this with a grain of salt… But that was quite possibly the dumbest thing I have ever read. What is the cost of capital for the US govt? 2-year treasuries yield 34 bps and the TARP preferred pay 5% dividends. I hope to god you do not work in finance.

  3. Steve

    If you are aware of fraud, waste, abuse, mismanagement or misrepresentations affiliated with the Troubled Asset Relief Program, please contact the SIGTARP Hotline!

    Phone: 1-(877) SIG-2009
    Online SIGTARP Hotline Form

  4. dave m

    YOU FORGOT TO MENTION IN ADDITION TO DISCOUNT THEY WOULD ALSO RECEIVE 5% DIVIDEND ON FULL AMOUNT –DIVIDEND GOES TO 9% ON BALANCES 5 YEARS AFTER ORIGINAL DATE—- (NEXT YEAR ??) AND AMOUNT PAID ON TARP IS —DIVIDEND — NOTINTEREST AND THERFORE NOT DEDUCTIBLE FOR TAX PURPOSES !!!!!!!!!!!!!!!!

  5. Jeff

    Seriously? You run other people’s money and hold out for gains on every holding? Remind me again of your definition of idiot?

  6. tom brown

    jeff, you are missing the point or just ignorant. My objection is that these six banks would have all paid back the TARP investment at par before year end 2013. Most of the six would have paid back before year end 2012. The Treasury took an unnecessary discount just so they could say they wound down the program. Bad investment decision.

  7. oops

    Jimmie lives in a world of split-second decisions, so I understand his (very basic) error in believing that time value is purely funding cost (esp for the government, where funding is unlimited … Until it’s not) and not uncertainty. When the core of time value, esp in a ZIRP environment, is uncertainty. But that’s why he gets the big bux. The rest of us just know that the free market tends to make better decisions than Obama.

  8. rivvir

    “The rest of us just know that the free market tends to make better decisions than Obama.” Really? In this case obama, and bushie before him, made the right decision in saving our financial system while the free market was hollering to let it fall. Now you’re hollering that the gvt should hold onto its investment in the private sector. You guys are really funny. Forget investment, the gvt is not in that business unless it’s the salvation of last resort for something that is too big to fail. Since being needed is no longer the case the gvt should get out as soon as feasible, whether it can make more money on its investment or not. I don’t want gvt in the business of playing the stock market. It has no business being there unless…

  9. jrallen81

    Tom, at least in Wilshire’s case the treasury still seems to own the warrant? I was wondering if these will trade a la the other public TARP warrants, but couldn’t tell from the filings so far.

    thx,

    John

  10. Jimmie Johnson

    $48.8 million? Peanuts. I get paid more than that to drive in a circle*.
    – Jimmie Johnson. Long time reader, 3rd time writer.

    * Not EVERY race is an oval. There is one idiotic race at the Glen where that bonehead Boris Said thinks he is king.

  11. jsc173

    Tom — simple question: if the taxpayers got screwed, who benefitted? In this case, I’m assuming the purchasers of the TARP holdings stand to benefit most. So, who were those buyers? Anonymous? Or the usual suspects??

  12. guest

    so you don’t believe in free markets, and/or the ability of markets to better value a security than the US Treasury? strange. also, there is a funny thing called time value.

  13. galdc

    The only other motivation is perhaps they think they can use the funds for other purposes, like the ill fated housing initiatives. Also, if the banks were paying the preferred dividends, then the Treasury officials also lost us taxpayers the income they would have received by holding.

    You’d think that Geithner would be able to do the math!!!!

  14. CM

    If you read Treasury’s press release, they spin it as PROFIT: “Each additional dollar recovered from TARP’s bank programs is an additional dollar of profit for taxpayers.” This would imply that they expected to receive ZERO from the remaining banks.

  15. sam

    apparently the sbcf is now multiple bids, no offers. good price the buyers got. The co-managers were an interesting bunch.

  16. Bruno

    Read the 3/28/12 IMF report on sovereign accounting gimmicks. You’ll understand.

  17. oops

    Jimmie lives in a world of split-second decisions, so I understand his (very basic) error in believing that time value is purely funding cost (esp for the government, where funding is unlimited … Until it’s not) and not uncertainty. When the core of time value, esp in a ZIRP environment, is uncertainty. But that’s why he gets the big bux. The rest of us just know that the free market tends to make better decisions than Obama.

  18. Brian Orrico

    My guess is if we figured out who was able to bid on and buy these securities we would better undestand why the Government was willing to make such horrible sales. #1) Who earned a commission by helping the government sell their positions. #2) Who got to be the Buyers? Were the Buyer underwater Pension Funds who need some easy double digit returns or they risk missing pension obligations? Or was the Buyer Goldman Sachs for their own account? I know I wanted to Bid on $10 Million of these but wasn’t allowed.

  19. R

    Another example of the financial ineptness of our federal government and complete absence of any sense of fiduciary duty, selling 5% coupons with near-term par calls at large discounts. Thanks for the article Tom.

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