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March 22, 2011 2:39 am MST

US Treasury To net $10B + On TARP Sale

  • by: MADCO

WASHINGTON (AFP) – The US Treasury Department on Monday said it would start selling-off mortgage-backed securities worth an estimated $142 billion, in an effort to close another chapter of the financial crisis.

… secured by state-backed mortgage giants Fannie Mae and Freddie Mac, were bought as part of the 2008-2009 financial sector bailout.…

The  Treasury is predicting $15-20 billion of profit, though private analysts are predicting $10B is more realistic.

It’s all in the timing.

If the Treasury goes slowly and avoids flooding the market, then $20B is realistic.  If they rush, as some lawmakers are urging the net will be smaller.  

The argument for rushing is being made along party lines.  Though the TARP was largely an R creation, it is the R’s who are now urging speed in selling off assets. It’s math, but simple math.

Meanwhile, back in 08 and again in 09-10 I argued more than once here on CoPols that the bank failure was neither an underwriting crisis nor a result of subprime default rates.  And it wasn’t just hte banks being mean.  It was liquidity crisis, which the banks brought on themselves.

This is more evidence that it was the leveraging strategy of the banks and other investors and speculators in the secondary mortgage market.

A market that some observers, those lacking data, want to claim failed because of FNMA and FHLMC.  Fannie and Freddie had a role, though it was minor,  and now that the secondary market is back on it’s feet, eliminating FNMA and FHLM will have little impact on the primary (retail) mortgage market for the typical consumer.

But the banking reform of last year did not go far enough to reign in the leveraging ability of the secondary market players.  Hundreds of years of data is  clear – a market based system works great for goods and services and works horribly for financial assets.

If we didn’t have fractional reserve banking, nor a liquid global capital market, nor a leveraged economy, nor private property rights I wouldn’t care if the banking industry blew itself up once in awhile.  (30’s, 80’s, 00’s). But because we do have all those things, and a banking led recession is painful for everyone, I do care.

We need to amend the financial regulation to limit the leveraging ability of banks and speculators, to limit the investment banking activity of depository institutions (FDIC insured, aka reimposition of Glass Steagall) and we need to give Elizabeth Warren whatever she wants for the CFPA.

And we need to keep those without data out of the discussion.


19 thoughts on “US Treasury To net $10B + On TARP Sale

        1. particularly if the government is expected to foot the bill if the greedy irresponsible assholes on Wall St. totally fuck up again, which they will.

  1. Government is not supposed to make a profit. It’s supposed to taxe the middle class and give the money to rich people and corporations. This is just another example of damned inefficient socialist big government.  

  2. The SEC used to enforce leverage limits, until, oh, about 2003, as I recall. Somehow, under the Bush administration, the 5000 pound gorillas of Wall Street were freed of these chains and look what happened. Bear Stearns, Lehman Brothers, and Merrill Lynch were the most highly leveraged of the bunch. POOF!

    The entire time the financial reform bill was under debate, the populous reaction was to spank the banks. That’s just not going to do it. No legislation that targets any specific trading activity, etc. will avert the next crisis. The evil bankers are really smart and will just find a way around it.

    I wholeheartedly agree with you that enforcing leverage limits is key to finacial reform. I could never understand why the House threw it out in committee. Each of the financial meltdowns in recent history were a function of over-leveraged financial firms, i.e. Long Term Capital.

    If they restored leverage limits to publicly traded financial institutions, they could pretty much throw the rest of the financial reform out the window and we’d still be much better off.

    Should it be extended beyond publicly held financial firms? Maybe. Long Term Capital was privately held and they sure made a mess. That said, privately held financial firms bear a far greater brunt of their risky activities and hence are more likely to limit their risk.

    Too bad they can’t earmark the TARP profits for health care!  

  3. The tragedy of Tarp is that it stopped a much need market correction. Sure there would have been losses but those losses would have come from people who deserved to lose it. Please do not tell me you believe in fairytale world with only gains and no loss?

    Some say Tarp would prevented total catastrophe.  Really?  Every legitimate asset would l have remained exactly as it was prior to collapse. This was no hydrogen bomb that destroys real property. The real property and assets would have remained intact how the price tag and owner may have changed.

    Bernanke and the elitist owners bamboozled you!

    Market corrections, in other words, market created redistribution, will bring you the equality you so desire!

  4. the right, at the time, was very strongly invested in blaming the whole thing on Fannie and Freddie and pressure by the libruls to force mortgage loans to people (meaning “minorities” meaning African Americans)  who couldn’t afford them, never mind it was Bush and friends pushing the what-me-worry, no holds barred “ownership society”, never mind that, as Madco points out, the Fannie and Freddie role was minor in any case.  Madco’s analysis doesn’t fit that narrative.  

    And you’d be surprised how the blame it on minority loving libruls story line still resonates with the kind of modestly middle class white folks the Tea Party appeals to. That’s something else I’ve gotten an earful of while canvassing.  It’s simple, easy to digest, racist justifying and a great excuse for opposing the kind of reform Madco advocates and that would make a real difference on the grounds that it’s just more freedom hating, class warfare against the poor hard working rich waging, librul over-regulation. That’s why the supposedly populist Tea Party isn’t even a tiny bit interested in anything to do with financial reforms that would protect the, well, populace.

    As far as profits?  These people think the goverment getting it’s hands on any money is a bad thing, never mind that, in our system, the government is us and it’s our money. It’s truly bizzaro world out there.      

  5. or perhaps Limbaugh:

    “Well you have to know that TARP would make a profit.  After all, it was a Republican program conceived by Paulson and the Bush Administration.  If it wouldn’t have been for Obama and Nancy Pelosi screwing it up, TARP would have made ten times as much money for Americans.”

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