Thursday, March 17, 2011

Ta-Da? or Ta-Doh?

Our Administration has announced that "99% of TARP funds are repaid."

Well, not really.

It's closer to the truth that banks have repaid 99 percent of the TARP funds that were disbursed to banks, as opposed to automakers or AIG.

...This claim, while accurate, is still not helpful in assessing TARP's effectiveness because, as former Congressional Oversight Panel members Pau Atkins, Mark McWatters, and Kenneth Troske argue in the Journal, "TARP was never where the real action was happening. In fact, other Fed and FDIC programs added another $2 trillion of taxpayer money at risk to the 19 stress-tested banks alone, on top of the $1.1 trillion of MBS purchased by the Fed. TARP is but one-eighth of that total."

And if you think you're paying too much interest to your friendly local bank, you're right--at least in comparison to what that friendly local bank pays to borrow money from the Fed:

Those numbers do not even include the Fed's near-zero interest rate policy, which has allowed big banks to earn risk-free profits.

It's called "the carry trade." Bank borrows $1 zillion from the Fed at .5% interest (note where the decimal is) and buys T-bills at 1.5%. Voila!! One percent clear with no risk, 12 times/year.

HT: AmSpecBlog

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