Last Friday I posted that I thought the Administration had less than $40 B of room remaining in the TARP. The Wall Street Journal reported today Monday that Treasury says “it has about $134.5 billion left in its financial-rescue fund.” Secretary Geithner addressed this question Sunday on This Week with George Stephanopolous.
GEITHNER: George, we have roughly $135 billion left of uncommitted resources. Less is out the door, but in terms of, if you look at what’s not committed yet, it’s roughly, you know, $135 billion.
Can we reconcile the two? If so, how?
We can piece some of it together from the public record. Here are the key data points:
- Geithner: “That estimate [of $135 B] includes a judgment, a very conservative judgment about how much money is likely to come back from banks that are strong enough not to need this capital, now, to get through a recession. But that’s a reasonably conservative estimate.”
- Wall Street Journal: “In its estimate, the Treasury projects that it will receive about $25 billion back from banks that have participated in TARP.”
- Wall Street Journal: “A Treasury official said Saturday that while the program could cost as much as $250 billion, the $218 billion number is a more-accurate estimate given that a key application deadline for the program has passed.”
The Secretary highlights an important but less well-known feature of the TARP. The law enacted last September limits to $700 B the Treasury’s net outlays at any one point in time. If Treasury gets money back from an investment, they can do something else with it.
Let’s begin by adding a column to my first table from last Friday. The right-most column marks in red the above two adjustments to the Capital Purchase Program (CPP) line, resulting in a new $193 B net estimate. The Administration has not signaled any changes to other elements of this table, and I don’t see how they could. The other funds have all been spent, so there’s not really any available discretion that I can see.
|Banks — Capital purchase program||$250||193|
|Bank of Amrerica||$27.5||27.5|
|….GMAC(including $1B from UST –> GM –> GMAC)||$6||6|
|Term Asset-backed Lending Facility (TALF)for new securities for consumer credit||$20||20|
|Subtotal, commitments duringthe Bush Administration
Now I’m going to take their new commitments and put them in tabular form, starting with the new $330.4 B figure above.
|Subtotal, commitments duringthe Bush Administration||330.4|
|+ new commitments bythe Obama Administration|
|Additional AIG funds||30|
|Housing subsidies from TARP||50|
|auto parts suppliers||5|
|small business loans||15|
|Further TALF expansion forconsumer credit and mortgages||80|
|Public Private Investment Plan||75-100|
|Total||585.4 — 610.4|
|Remaining room within $700 B total||89.6 – 114.6|
We need to get this range ($89.6 B — $114.6 B) up to the Secretary’s $134.5 B figure. To close this gap, we have only a few options:
- They dial back some of these commitments.
- There is overlap between the items on this table, so that they are, at least in part, non-additive.
- I’m missing something fundamental.
I do not see how they can dial back on the $30 B for AIG. I will assume I am not missing something fundamental. That means that the other items must overlap.
I will now start guessing. I will guess they are not going to change the $50 B number for housing, nor the $15 B for small business loans, nor the $5 B for auto parts suppliers. The obvious places for them to go are to start overlapping the big $80 B TALF figure with the other elements, and to squeeze PPIP.
I had assumed that the Administration’s publicly-stated “$100 B consumer and business lending initiative” was $20 B Bush + $80 B Obama, and that they added another $5 B for auto parts suppliers and $15 B for small business loans. Now I cannot see how that assumption is consistent with the Secretary’s statement that he has more room within the $700 B.
Look what happens if instead we assume that the $5 B and $15 B are a part of the “$100 B consumer and business lending initiative.” I will repeat this table with a new column. Let us also assume the lower $75 B figure the Obama team has used for PPIP, rather than the higher $100 B.
|Subtotal, commitments duringthe Bush Administration||330.4||330.4|
|+ new commitments bythe Obama Administration|
|Additional AIG funds||30||30|
|Housing subsidies from TARP||50||50|
|auto parts suppliers||5||5|
|small business loans||15||15|
|Further TALF expansion forconsumer credit and mortgages||80||60|
|Public Private Investment Plan||75-100||75|
|Total||585.4 — 610.4||565.4|
|Remaining room within $700 B total||89.6 – 114.6||134.6|
We have hit the Secretary’s figure within $100 M. To summarize, this means that a plausible explanation for the Secretary’s figure is:
- They are assuming no more funds go out the door in the Capital Purchase Program, beyond the $218 B that already has been invested.
- They are assuming “a conservative” $25 B of the existing investment will be repaid by the time they need it for something else.
- The TALF subsidy for new securitizations is only $80 B, rather than the $100 B I (and others?) had previously thought.
- But the Consumer & Business Lending Initiative is still the advertised $100 B, because they count the $5 B for auto parts suppliers, and the $15 B for small business loans, as part of that $100 B total.
- The PPIP is at the low end of the Administration’s range ($75 B), rather than the high end ($100 B).
I need to emphasize that I do not know these last three items. They are educated guesses about how to back into the Secretary’s publicly stated number.
I am also left with one huge uncertainty. I don’t know where the TALF subsidy for the purchase of toxic assets goes. Is it a subset of the $80 B TALF number I’m assuming, in which case there’s less TALF available for new securitizations? Or is it a subset of the $75 B number I’m assuming for the PPIP, in which case there’s less available for equity investment?
So was I wrong last Friday? There are three possibilities:
- I was wrong.
- Circumstances changed.
- While over the past several weeks the Administration has emphasized the size of their new programs, they are now looking for flexibility so they can maximize their chance of avoiding another request of Congress. They know that Congress is in a foul mood about the TARP, and are therefore looking to emphasize this flexibility by stating the largest number they can justify.
I think it’s #3. The Administration needs to balance the needs of the market with what is feasible from the Congress. Given recent AIG coverage, they are now leaning hard in the maximum flexibility direction. If this direction is sustained, I think the cost will fall upon the new programs, the TALF expansion and the PPIP, which would have to be smaller than some market participants may expect.