Bailout coverage has taken on a celebratory tone in recent days as a slew of banks including Goldman Sachs (NYSE: GS) have repaid TARP money, leaving taxpayers with what looks like a handy profit. In addition, equity stakes in Citigroup (NYSE: C) and Bank of America (NYSE: BAC) are sitting on a handsome paper profit.
The only problem is that hundreds of banks have received TARP money. Of course, the most healthy ones are paying it back quickly. The rest are still in limbo, and the result is that the Treasury Department is realizing plenty of gains while all the losses -- investments in companies like American International Group (NYSE: AIG), General Motors, and Chrysler -- remain unrealized and largely ignored.
This "sell your winners and let your losers" ride strategy leads to plenty of headlines about gains. But it's like an investor who reports a profit of $200,000 on his stock portfolio -- because he sold a bunch of stocks where he was up and held on to all his losers. Only be examining the value of all the investments on the books can we figure out how this bailout thing is working.
Meanwhile, the investments that haven't yet been cashed in still face a number of serious risks, as The Wall Street Journal recently reported that rising interest rates could lead to massive losses on the massive mortgage backed security portfolio.
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Reader Comments (Page 1 of 1)
9-02-2009 @ 1:33PM
ebrandler34 said...
AMEN BROTHER! You nailed it. That type of reporting is more pre-packaged sunshine, butterflies and unicorn propaganda obscuring the truth that the GS, BAC, MS and C's of the world held the government hostage last year until they got the sweetheart deals of the century.