TARP overpaid for assets, says watchdog

Posted Feb 6th 2009 12:45PM by Zac Bissonnette
Filed under: Bad News, Politics, Financial Crisis

Remember when Hank Paulson was going around saying that the TARP plan would allow the United States government to buy illiquid assets at bargain prices and earn a huge profit while providing a jolt of liquidity to the lending market?

Yeah, about that. You can judge the effect that had on the economy by checking out the latest unemployment statistics. But what about the bargain prices? That turns out to have been a pipe dream. The Congressional Oversight Panel estimates that the the Paulson overpaid for bad assets by some $78 billion, amounting to a gigantic subsidy of publicly-traded companies like AIG (NYSE: AIG). AIG received $40 billion for assets valued at just $14.8 billion.

"Treasury chose to offer 'one size fits all' pricing in order to encourage all institutions to participate, and in so doing disregarded apparent differences in their financial condition," the report says. "A consequence is that Treasury effectively offered weaker participants greater subsidies than it offered to stronger participants."

By allowing shareholders to retain stakes in bailed out companies, the TARP program hamstrung its efforts to recoup taxpayer cash, and deprived us of upside that we should be entitled to for our efforts to save these companies from failing. Think about it: We gave AIG $25.2 billion more than it should have received. Why is that stock still trading?

It doesn't make any sense. Hopefully the Obama administration will take a more hard-line approach to bailouts, and take its obligation to protect taxpayer interests more seriously.

Tags: bailout, Paulson, TARP

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Reader Comments (Page 1 of 1)

2-06-2009 @ 1:27PM

annee said...

This is why rushing the stimulus bill is just plain WRONG unless we take every Senator and Rep and give them electroshock treatments until they FORGET what party they belong to.