Last Friday I raised the question of how much funding is left in the TARP. This is now a broader discussion involving Secretary Geithner and the Treasury staff, the General Accounting Office, the Wall Street Journal and ABC News. I’d like to review the progression of this topic over the past six days and see if I can clarify what I think is going on. I will be rigorous in this post, and will follow up later today with a more speculative post about what I surmise is going on inside the Administration that is contributing to this confusion.
- Last Friday I wrote that I thought the Administration was running out of money in the TARP. I wrote then, “They have $33 B — $58 B before they hit the $700 B barrier.”
- That same day I showed that the Administration has been laying the groundwork for another TARP request since February, and using a $250 B number as a placeholder.
- Last Sunday, George Stephanopolous asked Secretary Geithner about this. The Secretary replied, “George, we have roughly $135 B 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.
- Monday, Maya Jackson Randall reported in the Wall Street Journal that “The Treasury Department said it has about $134.5 billion left in its financial-rescue fund, giving the Obama administration a cushion as it implements expensive programs aimed at unlocking credit markets and boosting ailing industries.”
- Tuesday morning I tried to reconcile this $100 B gap. I tried to show how one could interpret, or maybe reinterpret, the commitments previously made by the Administration over the past two months to justify the Secretary’s figure. I think and hope that I showed a plausible explanation for why the Secretary thinks he could say such a large number.
- That same day (Tuesday), GAO came up with the same $32.6 B figure, that I described last Friday. GAO correctly labels that figure, “Maximum announced program funding level.”
- Wednesday morning, Mr. Stephanopolous posted about this difference between Secretary Geithner’s Sunday morning number on the ABC News show, and the Tuesday GAO table.
- A couple of hours later, Ed Morrissey wrote about this roughly $100 B difference on HotAir.
- ABC News has since posted the following update on their website, although without a time stamp: “GAO officials tell ABC’s Charlie Herman that they now believe there are about $109 billion available in TARP. The office accepts Treasury accounting for all but the $25 billion Treasury estimates will come from financial institutions returning TARP money.” Clearly someone at Treasury picked up the phone and worked on GAO.
Let me see if I can clarify what I think is going on.
I think that $32.6 B is the best estimate of the amount of TARP funding available, using the fairest interpretation of the Administration’s public descriptions of a set of programs, made at varying times over the past two months.
I think that $134.5 B represents how much room they would have available, if they were to reinterpret their previous commitments in ways that technically comply with their past statements, but differ significantly from what market participants and the press expect. I think Treasury walked GAO privately through these reinterpretations.
In a way, both figures ($32.6 B and $134.5 B) are right, because (I think) the Administration is changing their policies. They just have not yet told anyone how.
As I wrote Tuesday morning,
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.
If you review the record of the past couple of months and interpret the Administration’s public statements at face value, taking the most logical interpretation for each, the numbers add up to $667.4 B, leaving $32.6 of room. This is what I did last Friday, ABC did for the Sunday morning show, and GAO published on Tuesday.
If instead you stretch each commitment to the maximum extent possible to create more funding room, if you assume that certain previous commitments overlap and are therefore non-additive, and if you assume that $25 B of previously injected capital will be returned to Treasury by banks, you can hit the Secretary’s $135 B figure.
So the proper question is no longer, “How much room is left in the TARP, given what we know to be the Administration’s policies?” It is instead, “What are the Administration’s policies, and given those, how much room is left in the TARP?”
Specifically, I believe this confusion could be clarified if Treasury were to answer publicly the following questions. The eaisest thing would be if they would publish a table (like GAO’s, or even my simpler one) that shows the policies and numbers assumed in the $134.5 B figure. Assuming they’re not willing to do this, and if they continue to insist on the $134.5 B figure, then the press, or Congress, or GAO, should ask the following questions of Treasury. I hate to be so lawyerly about this, because I think they’re trying as hard as they can under difficult circumstances, but I believe this confusion should be publicly clarified for the benefit of market participants, Congress, and the public at large.
I think the confusion would be clarified if Treasury were to post written answers to the following questions on their website, so that they are accessible to all. Getting this information filtered through GAO or a news organization is contributing to the confusion. With that, here are the questions to which the answers are now unclear (at least to me).
The Secretary has stated, and Treasury staff have confirmed, that they have $134.5 of uncommitted resources in the TARP.
Q1. How much does this assume is committed from the Capital Purchase Program? (The original commitment was $250 B. The WSJ reported that Treasury was assuming stopping at $218 B.)
Q2. How much does this assume will be repaid by banks, and when? Does Treasury know of specific banks that will return these amounts, and if so, (roughly) when should we expect that to happen? Within days, weeks, or months?
Q3. How much TALF subsidy is assumed within this $134.5 B figure? Please break this down among the following components:
- TALF for securitization of consumer credit
- TALF for securitization of new mortgages
- TALF for securitization of “toxic/legacy” mortgages as part of the new program announced last week?
Q4. How big should we expect the TALF lending capacity to be for each of the components in Q3? (This is a joint Fed/Treasury question that isn’t directly relevant to the amount of TARP commitments. It is, however, essential to markets to understand what to expect.)
Q5. Please list all the components of the “Consumer and Business Lending Initiative” and the TARP commitments for each.
Q6. The Administration has stated a range of $75 B — $100 B for the Public-Private Investment Partnership program. What figure for PPIP is assumed within the $134.5 B figure?
Q7. Is the TALF subsidy for the securitization of toxic/legacy mortgages a subcomponent of the answer to Q6, or is it separate?