The Congressional Oversight Panel is certainly doing its job of double-checking TARP expenditures and Treasury statements. Here’s a bit of its latest report, which accuses Treasury of overpaying for assets to the tune of $78 billion:
Valuation of the transactions is critical because then-Treasury Secretary Henry Paulson assured
the public that the investments of TARP money were sound, given in return for full value: “This
is an investment, not an expenditure, and there is no reason to expect this program will cost
In December, he reiterated the point, “When measured on an accrual
basis, the value of the preferred stock is at or near par."
This means, in effect, that for every
$100 Treasury invested in these companies, it received stock and warrants valued at about $100.
As discussed in greater detail in the remainder of this section, an extensive valuation analysis of
the ten transactions that was commissioned by the Panel concluded that:
- In the eight transactions which were made under the investment program for healthy
banks, for each $100 spent, Treasury received assets worth approximately $78.
- In the two transactions which were made under programs for riskier banks, for each
$100 spent, the Treasury received assets worth approximately $41.
- Overall, in the ten transactions, for each $100 spent, the Treasury received assets
worth approximately $66.
Meanwhile, other capital providers were driving much harder bargains:
- For each $100 Berkshire Hathaway invested in Goldman Sachs, it received securities
with a fair market value of $110.
- For each $100 Qatar Holding and Abu Dhabi invested in Barclays, they received
securities with a fair market value of $123.
- For each $100 Mitsubishi invested in Morgan Stanley, it received securities with a fair
market value of $102.
If Treasury wants to overpay for bad assets, in order to recapitalize the banking system, then it should do so transparently. What’s unforgivable is lying, and saying that you’re paying a fair price when you’re not.