The January 2010 SIGTARP report is released and if anything it's a validation of this sites many observations to date on TARP.
Despite the fact that the explicit goal of the Capital Purchase Program (“CPP”) was to increase financing to U.S. businesses and consumers, lending continues to decrease, month after month, and the TARP program designed specifically to address small-business lending — announced in March 2009 — has still not been implemented by Treasury.
Notwithstanding the fact that preserving home ownership and promoting jobs were explicit purposes of the Emergency Economic Stabilization Act of 2008 (“EESA”), the statute that created TARP, nearly 16 months later, home foreclosures remain at record levels, the TARP foreclosure prevention program has only permanently modified a small fraction of eligible mortgages, and unemployment is the highest it has been in a generation.
SIGTARP notes that we are nowhere with financial reforms.
- To the extent that huge, interconnected, “too big to fail” institutions contributed to the crisis, those institutions are now even larger, in part because of the substantial subsidies provided by TARP and other bailout programs.
- To the extent that institutions were previously incentivized to take reckless risks through a “heads, I win; tails, the Government will bail me out” mentality, the market is more convinced than ever that the Government will step in as necessary to save systemically significant institutions. This perception was reinforced when TARP was extended until October 3, 2010, thus permitting Treasury to maintain a war chest of potential rescue funding at the same time that banks that have shown questionable ability to return to proitability (and in some cases are posting multi-billion-dollar losses) are exiting TARP programs.
- To the extent that large institutions’ risky behavior resulted from the desire to justify ever-greater bonuses — and indeed, the race appears to be on for TARP recipients to exit the program in order to avoid its pay restrictions — the current bonus season demonstrates that although there have been some improvements in the form that bonus compensation takes for some executives, there has been little fundamental change in the excessive compensation culture on Wall Street.
- To the extent that the crisis was fueled by a “bubble” in the housing market, the Federal Government’s concerted efforts to support home prices — as discussed more fully in Section 3 of this report — risk re-inlating that bubble in light of
the Government’s effective takeover of the housing market through purchases and guarantees, either direct or implicit, of nearly all of the residential mortgage market.
Wow. Bear in mind this is the official inspector general of the TARP stating clearly what many blogs have been saying for months, the government is trying to re-inflate the housing bubble, banks just paid back TARP so they could get back to their outrageous bonuses and it's just business as usual until the next crisis comes.
SIGTARP makes a point to be even more blunt:
Look at this statement on the Federal Reserve buying mortgage backed securities:
In other words, the Government has done more than simply support the mortgage market, in many ways it has become the mortgage market, with the taxpayer shouldering the risk that had once been borne by the private investor.
So, we get stuck with the bill and a huge percentage of people do not even get to keep the houses. Foreclosures are expected to be about 4 million in 2010 and were greater than 2.8 million in 2009, representing about 2.2% of all housing.
Onto a few details on the state of the funds:
As of December 31, 2009, 67 TARP recipients had paid back all or a portion of their principal or repurchased shares for an aggregate total of $165.2 billion of repayments and a $5.0 billion reduction in exposure, leaving $368.8 billion, or 52.8%, of TARP’s allocated $698.8 billion available for distribution.
Among CPP participants, 74 have missed dividend payments to the Government, some of which made the payments on a later date. As of December 31, 2009, there was $140.7 million in outstanding unpaid CPP dividends. Finally, three TARP recipients that received a combined $2.6 billion in TARP funds have filed for bankruptcy
This is interesting, SIGTARP again mentions civil and criminal investigations, most of which are ongoing. This was mentioned also in a recent hearing on the AIG payout/CDO purchase debacle.
Frankly as much as a bombshell as this report is, I suspect we're going to be seeing neutron bombs if SIGTARP is successful in it's investigations. Note this quote:
SIGTARP’s Investigations Division has continued to develop into a sophisticated white-collar investigative agency. Through December 31, 2009, SIGTARP has opened 86 and has 77 ongoing criminal and civil investigations. These investigations include complex issues concerning suspected TARP fraud, accounting fraud, securities fraud, insider trading, bank fraud, mortgage fraud, mortgage servicer misconduct, fraudulent advance-fee schemes, public corruption, false statements, obstruction of justice, money laundering, and tax-related investigations.
Most of the investigations are ongoing but look at the results of just one and note how the Treasury says this all isn't a problem.
Two circumstances have come to light over the past quarter that relate to the conflict-of-interest wall issue, both of which are subject to ongoing reviews by SIGTARP’s Audit or Investigations divisions and will be described further in subsequent reports. First, notwithstanding Treasury’s refusal to require a wall in PPIP, one of the PPIF managers — AllianceBernstein L.P. (“AllianceBernstein”) — has imposed an ethical wall or informational barrier on its own initiative because it felt that it was best practice to do so; indeed, AllianceBernstein informed Treasury of its intent to do so at the same time that Treasury was insisting that the imposition of such walls was, among other things, “simply not practical.”
AllianceBernstein’s ethical wall, along with the previously discussed fact that three of the nine managers already operate similar walls in connection with their activities in other Government programs, simply belies that walls would not have been possible in PPIP.
Second, a series of unusual trades undertaken in one of the PPIFs just weeks after trading began has highlighted the problems that can arise in the absence ofca robust conlict-of-interest wall. The basic facts relating to these trades, initially brought to SIGTARP’s attention by OFS oficials, are as follows. The PPIF management company in question operates both a PPIF and one or more non-PPIF funds that invest in similar securities (i.e., mortgage-backed securities (“MBS”)).
In the case of this fund management company, the same person is the portfolio manager for both the PPIF and the non-PPIF fund. In late October, the portfolio manager directed that a particular MBS from the non-PPIF fund be sold after the security — in this case a residential MBS — had been downgraded by a rating agency. According to the company, multiple bids were received, and a quantity of the security was sold to a dealer. Within minutes of the sale, however, the same portfolio manager purchased, for the PPIF, the same amount of the same security from the dealer at a slightly higher price. Later in the day , the portfolio manager bought more of the security for the PPIF from the dealer at the original price.
From the above it's obvious SIGTARP and the U.S. Treasury at not only at odds, but is the implication the U.S. Treasury endorses a free ride for a few chosens with taxpayer money? Stay tuned obviously.
The complete report is attached to this post. It is 127 pages and goes into great details, including smaller fraud investigations and a recap of AIG to date.