Morning Scan

Wednesday, April 25, 2012

Receiving Wide Coverage ...

Throw a TARP Over Them: The U.S. Treasury will soon have to stop doing premature victory laps and start tallying the red ink for its Troubled Asset Relief Program. That's the politically inconvenient conclusion Christy Romero draws in a report scheduled for release Wednesday. The newly installed Tarp special inspector general, Romero declares that 351 small banks, with some $15 billion Tarp loans still outstanding, face a "significant challenge" in raising new funds to repay the government, the Wall Street Journal writes. The Small Business Lending Program, in particular, culled a large number of the healthier banks from Tarp, but left stragglers with less capital, missed dividend payments and in many cases regulatory enforcement actions to content with, American Banker notes. Romero's comments are part of her first quarterly report to Congress since becoming special inspector general in March and are part of her push to get government and regulators to help banks raise funds to repay their Tarp loans. Just how much the Tarp program will cost taxpayers—if anything—is a hot political topic. The Congressional Budget Office in December forecast a lifetime cost of $34 billion, noting that to date Treasury had spent $414 billion on Tarp and taken in $330 billion in dividends and repayments. Unwilling to let such facts get in the way of a good story, Treasury has been bragging about Tarp's financial success ahead of November's elections and claiming the government will "at least break even on its financial stability programs and may realize a positive return," the Journal notes. Romero takes issue with such claims, stating that taxpayers are still owed $118 billion, a figure she says includes investments in AIG, General Motors (GM), Ally Financial and other smaller programs under the Tarp umbrella, in addition to the outstanding loans to smaller banks. "It is a widely held misconception that Tarp will make a profit. The most recent cost estimate for Tarp is a loss of $60 billion," the report says, as quoted by TheStreet.com. Romero also counted $4.2 billion that Treasury had written off and realized losses of $9.8 billion "that taxpayers will never get back." Wall Street Journal, The Street, American Banker

No Bonus Round: Say it ain't personal it's just business. The top priority of many elected officials looking into the MF Global meltdown on Tuesday was not to shed new light on where the money went. It was not to ask it how it can be recovered. And it was certainly not to delve into the greater implications of the sudden collapse, regulatory failures, disappearance of more than a billion dollars in client money or what all this says about the soundness and stability of our financial markets. Instead, Job One was to make sure MF Global bankruptcy trustee Louis J. Freeh would not pay any bonuses to the MF Global employees who have stuck around to thanklessly toil away helping clean up the rotting carcass of the failed commodities brokerage. "Can you commit to us today that your office will not be seeking bonuses for any current or former MF global employee?" asked Sen. Tim Johnson, D-S.D. "Yes sir," replied Freeh, the former FBI boss. "I don't want to give any benefits to anyone that caused this debacle. Are you confident that is the case?" persisted Sen. Jon Tester, D-Mont. For elected officials, of course, it's hard to get beyond such slam-dunk pandering in what is combined election year, proxy season and spring of populist outrage. Let the record reflect that some matters of substance regarding MF Global actually did crop up on Capitol Hill on Tuesday. James W. Giddens, the trustee tasked with returning missing money to customers, was asked what has been learned from the MF Global mess. "Given the fact that operational personnel can move funds, it's almost not possible to build a foolproof system," Giddens testified to senators. "Relatively low-level operational people at any time have the authority to transfer hundreds of millions of dollars." Watch your wallet. New York Times, Wall Street Journal

Who's in Charge?: Gone are the days when being a corporate board member, much less a director of a prestigious bank, was a ticket to a life above the fray, served on fine china with doilies. Lately, boardrooms have been getting positively lousy with cooties. In the fraud and insider trading scandal of Rajat Gupta, the former McKinsey chief and director of Goldman Sachs (GS) and Procter & Gamble (PG), some of the ugliest testimony may soon come from another tarnished Master of the Universe. Ravi Trehan, a principal at Broadstreet Group, a New York investment firm, is expected to testify that Gupta called him in 2008 to pass along inside information about Goldman Sachs, the Wall Street Journal reports. Drawing broader lessons and casting further aspersions on boardrooms, and Goldman, is a New York Times story: "It may be surprising that the former chief of Fannie Mae still remains the director of a public company as prominent as Goldman Sachs and Target," (TGT) it writes. More surprising, adds the Times, is the fact that many other executives who drove big companies over cliffs are now directors at other big companies. They include Charles O. Prince III, the former chief executive of Citigroup (NYSE:C) who resigned under pressure in 2007 amid huge write-downs and the now infamous explanation for a ruinous strategy that "As long as the music is playing, you've got to get up and dance." Prince is currently a director of Xerox (XRX) and Johnson & Johnson (JNJ). Other tough-to-explain directorships include that of E. Stanley O'Neal, who as Merrill Lynch's CEO loaded up the firm with subprime debt and left it tottering. Today, O'Neal is a director of the aluminum giant Alcoa" (AA). Wall Street Journal, New York Times.

New York Times

Nobel laureate and far-left economist Paul Krugman tries to climb inside the shiny-pated head of Federal Reserve Chairman Ben Bernanke in his latest column. Milking a super-easy applause line, Krugman pursues the narrative that Bernanke has been derelict in his duties by letting the job market go to the dogs, even as he has lavished financial aid on Wall Street fat cats. Krugman claims that Fed Chairman Bernanke has failed to remain true to Princeton Professor Bernanke and offers a couple possible explanations: that there's nothing more a policy maker in this situation can do (Boo!), that politics is to blame (Double boo!), or that Bernanke "has been assimilated by the Fed Borg and turned into a conventional central banker" (Yeah!) Pick your poison. "The fact is that the Fed isn't doing the job many economists expected it to do, and a result is mass suffering for American workers," says Krugman. Up with people! Disclaimer: Krugman's op-ed was not brought to you by the Committee to Re-Elect the President. But it could've been.


, with contributions from Katherine Kane.