Congressional Budget Offices Estimate TARP Losses at $64 Billion

Congressional Budget Office
Troubled Asset Relief Program (TARP) Report

CBO is required by law to report semiannually on OMB’s assessment of expenditures under the Troubled Assets Relief Program (TARP). Today, CBO released the first of these reports. (For more on the TARP program, this blog post from October includes CBO’s analysis of the financial rescue legislation).

Through December 31, 2008, the Treasury disbursed $247 billion to acquire assets under that program. CBO valued those assets using discounted present-value calculations similar to those generally applied to federal loans and loan guarantees, but adjusting for market risk as specified in the legislation that established the TARP.

On that basis, CBO estimates that the net cost of the TARP’s transactions (broadly speaking, the difference between what the Treasury paid for the investments or lent to the firms and the market value of those transactions) amounts to $64 billion—that is, measured in 2008 dollars, we expect the government to recover about three quarters of its initial investment.

The Office of Management and Budget’s (OMB’s) report on the TARP, issued in early December, only addressed the first $115 billion distributed under the program. CBO and OMB do not differ significantly in their assessments of the net cost of those transactions (between $21 billion and $26 billion), but they vary in their judgments as to how the transactions should be reported in the federal budget.

Thus far, the Administration is accounting for capital purchases made under the TARP on a cash basis rather than on such a present-value basis—that is, the Administration is recording the full amount of the cash outlays up front and will record future recoveries in the year in which they occur. That treatment will show more outlays for the TARP this year and then show receipts in future years.

Weekend Listening: The White House Coup of 1933 - BBC4

This is an interesting topic, not because we believe in a plot by the wealthy and powerful Americans to throw in their lot with the more pro-business Hitler and Mussolini, but because it helps to portray the early days of the Great Depression in a more realistic light.

They were not a time of dignified suffering and widespread acts of kindness and compassion. They were often mean-spirited, violent, fraught with scams and snares for the weak, a particularly dangerous time in America with the rise of demagogues from both the Left and Right.

This was a difficult period in our history, poorly understood and insufficiently studied in our schools. Here is one aspect of it of which you may never have heard. It tends to upset people, because it disturbs the conventional view of history. This is not particular to the US.

There is no smoking gun in this program. There was a plot. It was investigated and the details of the investigation were not disclosed An American military hero, Smedley Butler, exposed it. This much we do know.

BBC4 does a reasonably even handed job of presenting facts, and surmise, and differentiating them.

Our friend Bart, at NowandFutures.com, has converted the radio broadcast to MP3 and has made it available here:

The White House Coup of 1933


Additional Reading:

The Business Plot of 1933 - Wikipedia

Smedley Butler - Wikipedia

American Liberty League - Wikipedia

Where is Bernie's Trade Book? Who Were His Partners?

FINRA has found no evidence of trades by Bernie Madoff on behalf of his private investment fund through Bernard L. Madoff Investment Securities, a commercial brokerage founded in 1960.

This appears to be a brick in the wall of 'rogue trader' status. He could do it himself because he made no trades at all.

However this was not Bernie's only commercial operation in the securities business, in addition to his now nefarious private fund.

Primex was registered as Primex Holdings, L.L.C. in NYS in October of 1998. Primex is a joint venture involving a digital trading auction which operates out of Bernie's 18th floor office at 885 Third Ave.

Madoff's business partners in the Primex Exchange were Citigroup, Morgan Stanley, Goldman Sachs, and Merrill Lynch.

Did Bernie give any business to this joint venture? Did any of the above brokers have any investments or losses with the Madoff Fund? If not why not? It was one of the most successful funds, on paper, on the Street?

More questions than answers. Let's hope this one does not disappear down a black hole like the enormous put option positions placed on the airline stocks just prior to 9/11.


Madoff's fund may not have made a single trade
By Jason Szep
Fri Jan 16, 2009 6:55am EST

BOSTON (Reuters) - Bernie Madoff's investment fund may never have executed a single trade, industry officials say, suggesting detailed statements mailed to investors each month may have been an elaborate mirage in a $50 billion fraud.

An industry-run regulator for brokerage firms said on Thursday there was no record of Madoff's investment fund placing trades through his brokerage operation.

That means Madoff either placed trades through other brokerage firms, a move industry officials consider unlikely, or he was not executing trades at all.

"Our exams showed no evidence of trading on behalf of the investment advisor, no evidence of any customer statements being generated by the broker-dealer," said Herb Perone, spokesman for the Financial Industry Regulatory Authority.

Madoff's broker-dealer operation, Bernard L. Madoff Investment Securities, underwent routine examinations by FINRA and its predecessor, the National Association of Securities Dealers, every two years since it opened in 1960, Perone said.

Madoff, a former chairman of the Nasdaq Stock Market who was a force on Wall Street for nearly 50 years, allegedly confessed to his sons the firm's investment-advisory business was "basically a giant Ponzi scheme" and "one big lie," according to court documents.

He estimated losses of at least $50 billion from the Ponzi scheme, which uses money from new investors to pay distributions and redemptions to existing investors. Such schemes typically collapse when new funds dry up.

Each month, Madoff sent out elaborate statements of trades conducted by his broker-dealer. Last November, for example, he issued a statement to one investor showing he bought shares of Merck & Co Inc, Microsoft Corp, Exxon Mobil Corp and Amgen Inc among others.

It also showed transactions in Fidelity Investments' Spartan Fund. But Fidelity, the world's biggest mutual fund company, has no record of Madoff or his company making any investments in its funds.

DISCREPANCIES

"We are not aware of any investments by Madoff in our funds on behalf of his clients," Fidelity spokeswoman Anne Crowley said in an e-mail to Reuters.

Neither Madoff nor his firm was a client of Fidelity's Institutional Wealth Services business, their clearing firm National Financial or a financial intermediary client of its institutional services arm, she said.

"Consequently, his firm did not work with our intermediary businesses through which firms invest their clients' money in Fidelity funds," she added.

There also appear to be discrepancies between monthly statements sent to investors and the actual prices at which the stocks traded on Wall Street.

For example, his November statement showed he bought software maker Apple Inc's securities at $100.78 each on November 12, about a month before his arrest. But Apple's stock on that day never traded above $93.24. The statement also showed he bought chip maker Intel Corp at $14.51 on November 12, but Intel's highest price on that day was $13.97.

"You could print up any statements you want on the computer and send it out to a client and the chances are the client wouldn't know, because they are getting a statement," said Neil Hackman, president and chief executive of Oak Financial Group, a Stamford, Connecticut-based investment advisory firm.

To some, the numbers did not add up.

About 10 years ago, Harry Markopolos, then chief investment officer at Rampart Investment Management Co in Boston, asked risk management consultant Daniel diBartolomeo to run Madoff's numbers after Markopolos tried to emulate Madoff's strategy.

DiBartolomeo ran regression analyses and various calculations, but failed to reconcile them. For a decade, Markopolos raised the issue with the U.S. Securities and Exchange Commission, which has come under fire in Congress in recent weeks for failing to act on Markopolos's warnings.