Marketplace Scratch Pad

The TARP over our eyes

Scott Jagow Dec 7, 2009

The government says TARP won’t cost the taxpayers as much as original estimates. Seems like a pretty good deal if TARP indeed helped save the banking system and prevented an even bigger collapse. But good grief, TARP has been about fuzzy math right from the get-go.

Your required reading for today is this Washington Post story about Neel Kashari, the man put in charge of TARP last year. The story is mostly about how Kashari, after the stress of the financial crisis, quit Washington and has been living in the woods ever since — in a mansion-cabin. The article has high entertainment/outrage value (even more so once you read the Huffington Post’s breakdown of it), but I wanted to make sure you saw this excerpt about the TARP calculation:

In Washington, he used his BlackBerry to determine the bailout sum presented to Congress. His arithmetic: “We have $11 trillion residential mortgages, $3 trillion commercial mortgages. Total $14 trillion. Five percent of that is $700 billion. A nice round number.”

Looking back, he says, he is more confident about the two-by-sixes (that he’s using to build a shed in the woods).

“Seven hundred billion was a number out of the air,” Kashkari recalls, wheeling toward the hex nuts and the bolts. “It was a political calculus. I said, ‘We don’t know how much is enough. We need as much as we can get [from Congress]. What about a trillion?’ ‘No way,’ Hank (Paulson) shook his head. I said, ‘Okay, what about 700 billion?’ We didn’t know if it would work. We had to project confidence, hold up the world. We couldn’t admit how scared we were, or how uncertain.”

So pardon me if I don’t do cartwheels when the administration says TARP will cost $200 billion less than originally estimated or that its losses will be smaller. Here’s more from CNN Money:

… the American public is still expected to incur a massive loss in the end — the question is just how much it will be. A separate estimate issued earlier this year by the Congressional Budget Office warned that TARP will ultimately cost taxpayers approximately $159 billion.

Not only are there considerable costs associated with running TARP, but many of its subsidiary programs are widely viewed as losing propositions.

For instance, the $27 billion that has been spent on the administration’s “Making Home Affordable” program, is money that taxpayers are unlikely to see ever again according to the Office of the Special Inspector General for TARP, the watchdog group created to monitor the program.

I’ll admit it’s nice when you find a $20 or a $200 billion you thought you’d lost. The president’s already thinking up ways to spend the money:

President Obama will likely recommend using the $200 billion to fund a series of projects, including building bridges and roads, and weatherizing homes, as well as providing further aid to the unemployed and to small businesses.

But a group of House Republicans has written a letter to Treasury Secretary Tim Geithner asking for the money to go toward the deficit instead:

“In order for the government to exit from the unprecedented interventions of the past year and a half, the government must first stop spending funds on more interventions,” the lawmakers urged Geithner. “The emergency has ended, and TARP must end as well.”

Meanwhile, many regional banks have little hope of getting out from under the TARP anytime soon. They’re saddled with commercial real estate loans. More about that tonight on Marketplace.

What do you think? Should the newfound TARP money go toward the deficit or should it pay for a job stimulus program? Or maybe we should leave it in place in case something else blows up. Or perhaps buy a few NFL teams? Build an awesome amusement park?

By the way — Kashari — he’s coming out of the woods to work for the bond trader PIMCO.

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