By DAVID WEIDNER at Marketwatch
More than 4 million Americans lost their homes in the wake of the financial crisis, but the vast majority of lenders survived through government assistance rushed to Wall Street in the fall of 2008.
The main bailout vehicle, the Troubled Asset Relief Program, was hailed six months ago as a success by the Treasury Department. That came after Popular Inc., one of TARP’s repayment laggards, paid the $1.22 billion due to taxpayers.
“While cost is not the complete measure of success, it is important to note that TARP’s bank programs have already yielded a significant positive return for taxpayers,” wrote Timothy Bowler, the acting assistant secretary for the Office of Financial Stability. “While unpopular at times, the program protected the economy during the crisis and helped keep credit flowing to consumers and businesses.”
But this week, a report by the agency created to monitor TARP, paints a different picture altogether. While most banks paid back the money with interest, there was rampant fraud in the program, which itself was costly. And, in the end, TARP has effectively lost, or written off, $35 billion with another roughly $1 billion outstanding.
The Treasury Department also has spent $1.5 billion running TARP since 2008. That’s a lot. So where has it gone? Well, it appears it was a government stimulus program of sorts.
Consider that last year, the department spent more than $2.5 million on employee travel.
There are 103 full-time employees running the program. Personnel costs came in at $130 million last year.
The TARP program has used 156 private vendors, 21 “financial agents” and 135 contractors. This doesn’t count the 481 employees working on TARP over at Fannie Mae FNMA, +0.88% and Freddie Mac FMCC, +0.93% , the mortgage giants seized by the government through receivership.
There are some other head-scratching expenses too. For instance, in 2011, TARP paid the Allison Group LLC $19,065 for “team building.” It paid a third-party vendor, Knowledge Mosaic Inc., $4,750 for access to Securities and Exchange Commission filings (they couldn’t call over and ask for access?). It paid the Federal Reserve Bank of New York $1 million for “monitoring and reporting conditions of” American International Group Inc. AIG, -0.23% .
It paid Congressional Quarterly $7,500 for three one-year subscriptions and Equilar Inc. $59,995 for a subscription to its executive compensation database.
As for the use of the bailout money, the report, by the Special Inspector General for the Troubled Asset Relief Program, has some startling information. Among them, 222 bank executives connected with the program have been charged with fraud since 2011, 160 have been convicted of wrongdoing, 91 have been sentenced to prison, and 45 are awaiting sentencing.
SIGTARP has recovered $1.4 billion through court orders, fines or settlements. It’s seized property including a 1954 Cadillac Eldorado. It estimates it has cases that could yield another $7.38 billion in recovery.
Also outstanding is $16.6 billion given to the auto industry ($2.93 billion to Chrysler,FCAU, +2.84% , $11.2 billion to General Motors Co. GM, +0.26% and $2.5 billion given to Ally Financial ALLY, -0.10% ) and $13.5 billion given to systemically important institutions (AIG). The capital purchase program is owed another $5.4 billion.
Some of this money will either never be recovered or just a fraction of it will. Because the Treasury Department took stock warrants in banks as a form of aid, it’s trying to sell those stakes via auctions. Unfortunately, those stakes have been selling at deep discounts to hedge funds and private equity firms, which often flip them, reselling them to the banks at a profit.
Of the 707 banks that initially participated in TARP, 134 still are in the program. More than 280 banks exited the program without repaying its disbursements in full.
Then, of course, there is the issue of the money that was supposed to go to struggling homeowners. At the start of TARP $45.6 billion was set aside for principal reduction and refinancing (Making Home Affordable program). At the end of last year, less than a quarter of the money, $9.9 billion, had been used.
Not to chastise Bowler, who leads TARP for the Treasury Department, but the bank bailout programs can’t simply be judged on what calamity they might have avoided. They need to be judged for their effectiveness in saving the institutions they sought to save, how cost-effective they were to implement and how the investments paid off.
More importantly, TARP wasn’t just a bank bailout. It was supposed to help homeowners stay in their homes. That there were between 4 million to 6 million foreclosures since the crisis suggest TARP ultimately failed in this area.
Perhaps the Treasury Department can send those who lost their homes to some “team building” workshops.