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PCBB Banc Investment Daily February 03, 2016
Banc Investment Daily
February 03, 2016

Pandora's Box And TARP Update

The first thing you need to know about Pandora of Greek mythology is that she didn't open a box. She opened a big jar, but somehow that got translated over the ages into a box. When she opened it, she released all the evils of humanity into the world.
The Pandora story is widely used today as a metaphor of how a mess can ensue from a single act--often an act that we know we shouldn't do. That is sort of like what happened to the global economy when toxic subprime mortgage bonds were released into the financial system and eventually led to the financial crisis that brought us the worst economic downturn since the Great Depression.
Like Pandora, the federal government was too late to stop the evils from getting out. So instead, the government sought to neutralize those evils after the fact, with a host of financial interventions. Actions included a bailout for both bank and automotive companies through the Troubled Asset Relief Program (TARP).
Fast forward to 2016 and the financial system is back on solid ground (as are automotive companies for that matter). After all of the hubbub and given it is political season, we wondered whatever happened to all those "bailouts" as those running for office tend to say.
It is interesting to note that Congress authorized $700B for TARP in late 2008, but only $430.7B was ultimately disbursed. Of that, Treasury doled out $245.1B to banks, $79.7B to the auto industry, $67.8B to American International Group (AIG), $46B to programs focused on helping consumers avoid foreclosure, and $27.0B to restart credit markets.
Despite the hype to the contrary, the bank portion of TARP delivered $275.0B to the Treasury vs. $245.1B originally invested. That is a total of about $29.9B or more than 12% above what was originally borrowed. Percent recovered: +112.2% to date.
The auto industry portion from the Treasury was $79.7B vs. $70.5B returned so far. That is about $9.2B less than what was borrowed. Percent recovered: +88.8% to date.
The AIG portion from the Treasury was $67.8B vs. $72.9B returned so far. That is about $5.1B more than what was borrowed. Percent recovered: +107.3% to date.
The credit market stabilization portion from the Treasury was $19.1B vs. $23.6B returned so far. That is about $4.5B more than what was borrowed or over 23% higher. Percent recovered: +126.3% to date.
Doing a deeper dive into the data, you can find information on how much the Treasury actually had to write off under TARP. Banks were $5.08B or about 2.1% of the total borrowed; AIG was $13.48B or almost 20%; and the auto industry was almost 21%. Looking closer at the auto industry, GM borrowed $49.5B and the Treasury wrote off $11.2B (22.5%); Chrysler borrowed $11.96B and the Treasury wrote off $2.93B (24.5%); and Ally/GMAC borrowed $17.17B and Treasury wrote off $2.47B (14.4%).
It looks like bankers can take solace in the fact that the facts show banks repaid in full with interest, while some in the auto industry still owe a lot to get back to zero, as does specialty insurance company AIG. Guess bankers aren't all that evil after all and it sure looks like Pandora opened her box during the crisis to flood money to some that have not yet repaid the favor in kind.