Thursday, July 8, 2010

Don't tell the Tea Party (TARP turned a PROFIT!)

As reported on Politico's Morning Money section, the Troubled Asset Relief Program (a.k.a. TARP) has turned a profit.  According to a new report issued by the Financial Analyst firm Keefe, Bruyette & Woods on July 6, 2010,... "Overall, TARP CPP investments appear to provide positive returns to the Treasury."  Additionally, for the 61 banks that have fully repaid their TARP loan the average Return on Investment (ROI) was 10.3% with six having a ROI greater than 20%. 

Keep in mind that TARP was a program started under the Bush Administration and carried over to the current Obama Administration.  While a 15% ROI is generally considered a good measuring stick for the soundness of a good investment, at this point anything that shows positive returns from the Treasury's bailout of these badly (if not criminally) mismanaged banks and global financial firms, indications are that things are moving in the right direction. 

Another bit of good financial news today comes from the International Monetary Fund (IMF).  As reported by the Associated Press the IMF has raised it's 2010 World Growth Forecast, lead by the United States and China.  But, the IMF does offer a bit of caution.   According to Jose Vinals, who oversees the IMF's monetary and capital markets department, Europe's debt problems "could spill over to other regions and stall the global recovery." 

This leads to the question that everyone that has been negatively affected by the Great Recession has asked:  What would things look like and were would we be if the Federal Government hadn't enacted TARP, bailed out the American Auto Industry, or passed the Stimulus?  Would we be looking at national unemployment at the levels of the Great Depression of 25% or greater if we hadn't? 

Unfortunately, in may areas of the nation this is the reality.  In Martinsville and Danville, Virginia the actual unemployment numbers are over 20% and 16% respectively.

For all the anger and railing against the Federal Government from the Tea Party over bailing out these financial institutions, and how the Government has done nothing but screw things up since the Obama Administration and Democrats have been in control, this strategic investment in our Capitalist system seems to be working right. 

The surest way to reduce the size of the Federal Government, or any state and local government, is for unemployment to continue at the current levels of around 9.5%, or have them go higher.  When people are out of work they pull back on spending and paying sales taxes, and among other things they can't pay their income and property taxes.  All of these revenue sources are what funds our Federal, State, and Local governments. 

Counter to the path that much of Europe is taking these days through Austerity (focusing on reducing their national debts by cutting their budgets and government services), Political Scientist and Economist Paul Krugman argues that the Stimulus was too small to begin with and we need more, not less.  There is nothing more that will send fiscal conservatives and Tea Party activist into a tirade than calling for more government spending that adds to the national debt. 

But, as Krugman suggests from his rounds on this past Sunday's talk shows, more government spending now could be all the difference in sustaining the recovery or having us slide into a full blown Depression.  More Stimulus will not impact the level of long term national debt, which will take years to pay down. 

At this point, with incumbents from both major political parties hunkering down or heading for the hills for the duration of the 2010 campaign season, the likelihood of a new stimulus package along the lines Paul Krugman is suggesting are about as likely as Rush Limbaugh, Glen Beck, and Neal Bortz becoming normal/reasonable people. 

The point is that TARP is actually working and not everything that the Federal Government does turns into a train wreck.  It is going to take time to correct 30 years of financial deregulation and bad monetary policy. 

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