Secretary Geithner and President Obama today hailed the repayment of $68 billion in TARP funds as a clear indication of the success of the overall financial recovery programs implemented by the administration. Well, as those familiar with the “shell game” know, in order to keep the game going, it is critically important to display some winners on a regular basis.
How do we know that the TARP funds were utilized properly and everybody won on this government investment? We don’t, despite what Barack says. Money is fungible. The system was saved, with no small thanks to the FASB’s relaxation of the mark to market. These TARP recipients are designated as the winners. Meanwhile the system still has upwards of $500 million -1.25 billion in embedded losses, depending on whose projection you would like to use.
In my opinion, I believe Barack and team would have preferred to keep the TARP funds within these financial institutions. That said, there are other factors at work here. What are they?
1. when the TARP legislation was passed last Fall during the Bush administration, it set specific ground rules necessary for repayment. Barack, Tim, and team would have run the risk of flouting that legislation if they did not allow some firms to repay.
2. the administration will still be able to wield significant influence over these firms via a number of other Fed backstops already in place.
3. not being widely publicized but of very real significance, the administration will need these funds in other firms. What firms? Let’s drive on over to Hartford.
As the WSJ recently revealed, Hartford Chief Expects TARP Funds Soon:
It is expected in the next few weeks to get as much as $3.4 billion in funds under the Treasury’s Capital Purchase Program.
Hartford’s stock was down today as it is being downgraded by equity analysts at Citigroup due to management issues.
Recall that Hartford (HIG) was one of 6 insurance companies that received thrift status by acquiring a controlling stake in a small institution. As such, these firms became eligible for TARP funds. In my opinion, once the TARP dam is broken with one insurance company, the stigma is lessened for others to acquiesce in accepting these funds.
What might be the next stop after Hartford? Perhaps Newark (Prudential Insurance) or Philadelphia (Lincoln Financial). Sense on Cents will monitor where the TARP train moves next.