4 ms·

Sure, it was a loan--that no other financial institution could have dared to make, thereby making the expected interest rate on the open market for such a loan

by pak 11y ago

Sure, it was a loan--that no other financial institution could have dared to make, thereby making the expected interest rate on the open market for such a loan much higher than whatever accounting tricks are used today to determine that the government turned a "profit." Furthermore, the loans involved the government purchasing financial instruments that were basically impossible to value fairly [1], because much of it was junk at the time, and so the Treasury probably overpaid for them [2]. Finally, as far as using the money for long-lasting economic change, the loans were given with basically no strings attached, so banks that "qualified" for TARP (does anybody seriously believe that the Treasury selected participants in a neutral, transparent manner?) could use the money to swallow up smaller institutions for a bargain [3], basically subsidizing more of the bad behavior that led to the collapse in the first place. [1] http://web.archive.org/web/20090110184334/http://www.uiowa.edu/ifdebook/issues/bailouts/eesa.shtml http://web.archive.org/web/20090110184334/http://www.uiowa.e... [2] http://web.archive.org/web/20090207100935/http://cop.senate.gov/documents/cop-020609-report.pdf http://web.archive.org/web/20090207100935/http://cop.senate.... [3] http://www.nytimes.com/2009/01/18/business/18bank.html http://www.nytimes.com/2009/01/18/business/18bank.html

hueving 11y ago
>whatever accounting tricks are used today to determine that the government turned a "profit." The government got back more money than it loaned out? Does that qualify as an accounting trick now?
- pak 11y ago
  Is the fair market value for the interest rate on a loan really that abstract? This must be why with the simplest rhetorical flourishes, the financial industry can convince people that their hundreds of millions in lobbying dollars are well spent on regulation that protects average Americans. An interest rate has to incorporate size of the loan, expected term of the loan, and risk of default (recall these were distressed banks), among other things. Here's an accounting trick for you. Why don't you give me a $1000 loan for twenty years, and since you don't know me, the risk of default is, let's say, pretty high. I'll repay you $1001 in 2036—heck, just to be generous, I'll do it in inflation-adjusted dollars. When I do that, I will be happy to have you tell me about the "profit" that you made off of your investment.
  - Laaw 11y ago
    No one said or implied any of what you're saying. Did we or did we not get more money back from the banks than we gave? That was the question, and the answer was we did. No one's making value judgements about that, it's just a statement of undeniably true fact. That is the literal definition of profit, and the US government made a profit on the loan.
    - pak 11y ago
      Look, man, there's a reason this thread is all the way at the bottom of the page. If you actually think that your "literal definition of profit" (that any returned Y in the future, minus X loaned now, exceeds 0) is at all meaningful in a world with inflation, risk of default, and the commonly accepted practice of charging interest, I don't know what else to say. Please see any [1] of [2] these [3] to understand why it isn't as simple as "Y - X > 0", considering things like where the repayments are coming from, comparing the nominal annualized return to Treasury bond rates, all the fraud that will never be accounted for, etc., etc. Even pro-bailout articles [4] have to include weasel phrases like "on a risk-adjusted basis, even [such and such proposed Y - X] isn’t that big a profit, given the huge downside the government had," speaking directly to my point of how it's hard to properly account for risk, which is what any other lender would have done. Arguably, since there weren't any competitors to the US government for providing bailout money, the interest rate we use to judge whether it was "profitable" should be sky high. [1]: http://www.nationalreview.com/article/395822/overselling-tarp-myth-15-billion-profit-matt-palumbo http://www.nationalreview.com/article/395822/overselling-tar... [2]: http://www.huffingtonpost.com/2012/04/25/tarp-profit-a-myth_n_1450363.html http://www.huffingtonpost.com/2012/04/25/tarp-profit-a-myth_... [3]: http://www.forbes.com/sites/halahtouryalai/2012/04/25/dont-be-fooled-theres-no-profit-in-bank-bailouts-tarp-watchdog/#2715e4857a0b2626bb5a72f2 http://www.forbes.com/sites/halahtouryalai/2012/04/25/dont-b... [4]: https://www.washingtonpost.com/business/economy/bailout-highly-profitable-for-taxpayers-when-you-look-at-the-right-numbers/2015/01/01/dc2a05a6-8fa5-11e4-a412-4b735edc7175_story.html https://www.washingtonpost.com/business/economy/bailout-high...
      - Laaw 11y ago

by pak 11y ago

hueving 11y ago

>whatever accounting tricks are used today to determine that the government turned a "profit." The government got back more money than it loaned out? Does that qualify as an accounting trick now?

pak 11y ago
Is the fair market value for the interest rate on a loan really that abstract? This must be why with the simplest rhetorical flourishes, the financial industry can convince people that their hundreds of millions in lobbying dollars are well spent on regulation that protects average Americans. An interest rate has to incorporate size of the loan, expected term of the loan, and risk of default (recall these were distressed banks), among other things. Here's an accounting trick for you. Why don't you give me a $1000 loan for twenty years, and since you don't know me, the risk of default is, let's say, pretty high. I'll repay you $1001 in 2036—heck, just to be generous, I'll do it in inflation-adjusted dollars. When I do that, I will be happy to have you tell me about the "profit" that you made off of your investment.
- Laaw 11y ago
  No one said or implied any of what you're saying. Did we or did we not get more money back from the banks than we gave? That was the question, and the answer was we did. No one's making value judgements about that, it's just a statement of undeniably true fact. That is the literal definition of profit, and the US government made a profit on the loan.
  - pak 11y ago
    Look, man, there's a reason this thread is all the way at the bottom of the page. If you actually think that your "literal definition of profit" (that any returned Y in the future, minus X loaned now, exceeds 0) is at all meaningful in a world with inflation, risk of default, and the commonly accepted practice of charging interest, I don't know what else to say. Please see any [1] of [2] these [3] to understand why it isn't as simple as "Y - X > 0", considering things like where the repayments are coming from, comparing the nominal annualized return to Treasury bond rates, all the fraud that will never be accounted for, etc., etc. Even pro-bailout articles [4] have to include weasel phrases like "on a risk-adjusted basis, even [such and such proposed Y - X] isn’t that big a profit, given the huge downside the government had," speaking directly to my point of how it's hard to properly account for risk, which is what any other lender would have done. Arguably, since there weren't any competitors to the US government for providing bailout money, the interest rate we use to judge whether it was "profitable" should be sky high. [1]: http://www.nationalreview.com/article/395822/overselling-tarp-myth-15-billion-profit-matt-palumbo http://www.nationalreview.com/article/395822/overselling-tar... [2]: http://www.huffingtonpost.com/2012/04/25/tarp-profit-a-myth_n_1450363.html http://www.huffingtonpost.com/2012/04/25/tarp-profit-a-myth_... [3]: http://www.forbes.com/sites/halahtouryalai/2012/04/25/dont-be-fooled-theres-no-profit-in-bank-bailouts-tarp-watchdog/#2715e4857a0b2626bb5a72f2 http://www.forbes.com/sites/halahtouryalai/2012/04/25/dont-b... [4]: https://www.washingtonpost.com/business/economy/bailout-highly-profitable-for-taxpayers-when-you-look-at-the-right-numbers/2015/01/01/dc2a05a6-8fa5-11e4-a412-4b735edc7175_story.html https://www.washingtonpost.com/business/economy/bailout-high...
    - Laaw 11y ago