on this issue he certainly was. bush did a pretty decent job his last 18 months or so, too bad the previous 78 were so bad.
on this issue he certainly was. bush did a pretty decent job his last 18 months or so, too bad the previous 78 were so bad.
the bulk of aig is highly profitable, it was one little unit in one little office in london that lost them a quarter trillion dollars.
As I understand it (which is always questionable), though the 'bundles' of toxic assets may originate from the Fed only a portion of the 'risk' belongs to them - The FDIC and the Treasury Dept each have a piece, too.
The scenario seems oddly familiar - LOL. The assets will be bundled and the resulting securities will be 'rated'. Except this time the 'risk' is minimized by the Fed, FDIC and Treasury because they will guarantee a minimum value of the 'bundles'.
AFAIK, you're thinking of another program. TALF, or (T)erm (A)sset (L)oan (F)acility, is a securitization funding facility which makes non-recourse secured loans to purchasers of newly issued AAA securitization bonds. The loan is secured by the bond, which MUST be currently rated AAA by the rating agencies, the servicer/seller MUST conform to TALF eligibility criteria.
The loan is NOT for the full par value of the bonds, there is a haircut applied, depending on the asset class. The last time I checked the lowest haircut is 6%, the highest is about 15%.
The AAA rating is applied to the bonds based upon far more conservative measurements than historical ABS bonds. Why? Because the rating agencies realize that they are teetering on the edge, any more fuckups and they are in major trouble, especially now.
The bonds themselves, being AAA rated bonds, already have very conservative "overcollateralization" (a haircut if you will). Thus, the Fed's loan is really a Super-Senior-AAA bond. The first loss piece is held by the Servicer/Seller, the second loss piece is held by the bond purchaser. For example, if a small ticket lease portfolio had a 20% overcollateralization and a haircut of 10%, then the Fed would be protected against 30%+ net loss on the portfolio.
The general affects of TALF have been very good. Non-TALF bonds have been massively aided by TALF efforts, as it has started the securitization engine again. Credit card bonds, which were going at LIBOR+500 during the worst parts of the crisis, were pricing at L+150 for TALF, and, for non-TALF issues now, they are pricing at L+100, or lower.
Overall, TALF has aided in the overall liquidity of the market, both for TALF issues and non-TALF issues.
It will, in all likelihood, not result in losses to the Fed. If some issues did have losses they will be few and usually not major losses.
Thank you for clarifying, but I'm still not sure that I understand.
1. You're saying that you can determine profit or loss on each individual TARP "loan," as it pays off or defaults. Okay, that's fine. You can take a snapshot of the entire portfolio right now and say "Look, it's profitable because some of the loans have paid back with interest."
2. Alternatively, you are saying that a bank carries the TARP loan as a liability, and adds the interest on the loan to its liabilities on its books. The government can then carry the interest on the loan as an asset on the government's books. No actual money has changed hands, but you can see how much TARP has in profit or loss each month. Has this been done? Doesn't this assume that the bank is capable of paying the loan plus interest? What if it can't?
Have the banks actually been given an actual payoff deadline, or a repayment schedule? If not, then this is a brilliant move by the government because that means there will NEVER be any realized losses on the TARP (unless a bank actually goes bankrupt), and the program is now officially "profitable" and always will be.
Anyway, I'm just saying that as a whole, you can't calculate the profit/loss on TARP as a whole, until you get a final determination on all the loans. Given how well the banks have managed their money, I won't be satisfied until all the actual money gets paid back.
I didn't mean I appreciate your candor in admitting you didn't understand LunarRay. I meant I appreciated your candor in admitting now off base you must be in having an understanding of government that differs greatly from mine. Think about it. It requires no math.
LunarRay
Diamond Member
- Mar 2, 2003
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I'm saying you can cut the cake any way you want or not at all... but each loan stands on its own merit, it seems to me. While the portfolio of loans made are paid off they fall out of that portfolio and become cash which replaces the asset and profit.
On the EDIT... the lender's books the loans are Assets. The inflows are reductions to those assets and become cash.. as above... cr asset loan dr cash and credit income from loans...
Rule of thumb... recognize losses as soon as possible and profit as late as possible is a concervative approach to this... however, once a loan no longer exists shouldn't you at that point gather up all the loans either defalted or paid or partially paid etc.. and state the case...
But again, I'd have given the money free to them to stave off deflation.
LunarRay
Diamond Member
- Mar 2, 2003
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I guess the point that I'm really trying to make is that Government is suppose to insure the economic health of country. IF disaster is in front of us.. and it was... does it matter a bit about how much money is made on TARP or any of it... IF we gave 5 trillion away to industry and people to save us from Deflation... which would have cost many times that to get back to health again is it not smart and good Government to do as they did...
Forget getting interest... that is icing on the cake..
Forget getting interest... that is icing on the cake..
Ok, now I understand that you're parsing out each loan separately, and that the government's books shows a reduction in cash but a corresponding increase in an asset (the loan). But why would you do that when TARP covers many banks? TARP, as a whole, may be showing a profit right now, but until a few hundred billion dollars more gets repaid, I'm not going to be shouting "Hallelujah!"
Are we absolutely sure that every TARP bank is going to fully repay their loan? If not, then the government can't count the loan as an asset, or at least not the full value without accounting for the risk involved.
You say that each loan stands on its own merit. Was each TARP loan made on its own merit?
I'm not arguing the merits of TARP, but don't tell me that accounting methods demonstrate that the government hasn't, and won't, lose any money based on just two banks.
LunarRay
Diamond Member
- Mar 2, 2003
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I'd hope each Tarp action had its own set of conditions and we know of some or most. I guess, and it was designed with some sort of 'profit' involved. I guess the profit is a report card on the decisions made at a dire period of time. Some were easy no brainers while others had more risk attached. I'd expect failure but maybe just maybe the folks figuring it all out did a good job even if there results a net loss... I'd look to the individual loans and see what logic was used that provide the results as they come in... each is a separate event.
You can look at this from the collective if that is the way you analyze it.. I look at each loan and its own situation... Since TARP is simply a program which will some day end its existence the end of the day will come and the results seen... As I keep saying, however, profit in the program is like icing on a cake.. it is the securing of the economy and THAT savings that matter.
That's less than the 9 billion taxpayer dollars that went missing off a loading dock in Iraq. That's a deal.
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