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Thursday, January 08, 2009

Betting TARP won't be a money maker

A curious article in the Wall St. Journal, titled "Smartest Guy In the Room?" notes the early returns from TARP, the $700B bailout plan, are pretty good:

New Hampshire Republican Sen. Judd Gregg estimated that the bailout program has had a gain of about $8 billion in the past three months. "The TARP, for all its warts, has involved using tax dollars to invest in assets that will have a return to the taxpayer," Sen. Gregg said. "In fact, the estimate to date is that the TARP has actually had a gain of about $8 billion, while recapitalizing the financial system. With this type of stimulus, there will be little, if any, long-term increase in the debt."

If TARP keeps going along the same lines, it will put to shame many professional U.S. private-equity funds with decades in the business.

Consider: With an $8 billion gain on the $200 billion investment Treasury has made so far in banks and companies until Dec. 30, that adds up to about a 4% return -- or better than most hedge funds, mutual-fund managers and private-equity firms can claim for last year.

If you annualize TARP's return on the assumption it will continue to succeed, it would add up to a roughly 16% return on that initial $200 billion investment a year.

To me, this looks like an article planted to curry a bit of favor with sources in the Treasury Department. If the Journal really thought things were going to turn out this rosy, they wouldn't have buried the story on page C2, next to a story "Costs to Run TARP Expected to Jump", which is notably less positive.

I'm betting TARP won't end up as a money maker. I doubt I can find anyone to take that bet, probably including Senator Gregg.

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