TROUBLED ASSETS RELIEF PROGRAM

WHAT IS TARP?

Emergency stabilization act , 3rd Oct 2008 To bail out the economy from the financial crisis Gave the US treasury USD 700 Billion purchasing power USD 250+USD100 Bn immediately released to treasury Next USD 350 Bn - Congress approval needed To buy Mortgage Backed Securities To un seize the money market To create liquidity

SUBPRIME CRISIS

OBJECTIVE & OUTCOME

Purchase assets and equity from financial institutions to strengthen its financial sector To address the instability caused by subprime mortgage crisis. Allows the Treasury to purchase illiquid assets from banks and other financial institutions To purchase CDS, which were sold in a booming market until 2007 Finance main street- Making Home affordable Program- Help families stay in their homes = TARP was eventually getting Wall Street back on its feet; it is not meeting its goal of getting Main Street back on its feet Result: 'Too-big-to-fail' banks grow even bigger

TARP RECIPIENTS

TARP FUNDS

TARP funds were issued through: Purchase of preferred stock in banks which is redeemable

Purchase of Warrants Issue of guarantees

TARP AND GOVERNMENT

TARP became an act under president G.W. Bush President Barack Obama (Jan 09) said that he intended to "fundamentally change some of the practices" in the bailout program He said, "Many of us have been disappointed with the absence of clarity, the failure to track how the money's been spent.

In Feb 2010 he planned Congress to transfer TARP funds that have been paid back from the Wall Street banks to a new program "to provide capital for community banks on Main Street which deal more closely with the small businesses

TARP- US TREASURY SECTRTARIES - GOLDMAN SACHS

HENRY HANK PAULSON Served as the

74th United States Treasury Secretary, previously the Chairman and Chief Executive Officer of Goldman Sachs Influenced the decision to create a credit facility of US$85 billion to AIG to avoid filing bankruptcy Paulson's plan potentially had conflicts of interest The Goldman Sachs benefit from AIG bailout was recently estimated as USD 12.9 billion and Goldman Sachs was the largest recipient of the public funds from AIG

TARP- US TREASURYSECTRTARIES - TARP- US TREASURY SECTRTARIES TARP- US TREASURY SECTRTARIES - GOLDMAN SACHS
GOLDMAN SACHS GOLDMAN SACHS
TIMOTHY GEITHNER
75th and current US Treasury Secretary Directed the Federal Government's spending on the financial crisis of 07 10, allocation of $350 billion TARP funds In Mar08,supporting role to Henry Paulson, in decision to bail out AIG 2 days after deciding not to rescue Lehman Brothers from bankruptcy. contributed to worsening the global financial crisis

TROUBLED ASSETS RELIEF PROGRAM

TARP & AIG & GOLDMAN SACHS

AIG : USs largest insurance company and the

worlds leading issuer of credit default swaps Collapsed in September 2008-high leverage, high exposure to CDS Received-USD 180 bn under TARP in installments Goldman got $4.8 billion from AIG's securities lending unit And AIG posted $2.5 billion in collateral to Goldman , which came directly from TARP according to AIG's own list of what it did with its bailout money

TARP & AIG & GOLDMAN SACHS

It got twice as much as any other American bank, the Fed's "special purpose vehicle" that it created to unwind AIG's credit default swaps AIG bailout turned out to be a scam. AIG executives - ($165 million) in bonuses Billions of taxpayer dollars paid to the counter- parties of AIGs financial deals It still owes a combined total of $62 billion to the Fed and the Treasury

WHAT REALLY HAPPENED

IS TARP ONLY A FAILURE? MAY BE NOT!

Failure to the purpose it was set for

Success: managed to lift the face of the economy TARP repayments had reached a total of $240 billion, Net outstanding $110 billion Taxpayers have also received a further return on TARP investments of $23 billion through dividends, interest, and other income Overall combined TARP revenues totaled $217 billion through the end of May 2010 The US Fed has made huge profits through purchase of equity capital 80% of AIG is owned by the US Fed.

BANKS PAYING UP

Tarp was suppose to strengthen the balance sheet of the banks for long run stability Banks paid up to get free from restrictions by fed govt on tarp recipients To free themselves of salary caps Paid by offering loans which beats the objective

TARP PAYMENTS

TARP REPAYMENT SELECTED PROS TARP REPAYMENS BY BANKS AND CONS

PROS
PROS

CONS

CONS

Signals strength and Its relatively cheap capital avoids competitive Signals strength and avoids Its relatively cheap capital disadvantages competitive disadvantages Reduces government Replacement capital may influence on governance be more expensive and Reduces government influence Replacement capital may be and management dilutive on governance and management more expensive and dilutive Eliminates TARP-related Continued economic compensation restrictions weakness could result in Eliminates TARP-related unanticipated need to Continued economic weakness raise capital after TARP compensation restrictions could result in unanticipated repayment need to raise capital after TARP repayment It might be advisable to do Compensation practices it now before conditions to will continue to be repayment are changeddo it scrutinized and perhapswill It might be advisable to Compensation practices now before conditions to regulated even after TARP continue to be scrutinized and repayment are changed perhaps repaymentregulated even after TARP repayment

PRESENTED BY:
Amol Kulkarni Anupam Chauhan Amit Anand Nikhil Khedkar Subodh Dange Vivek Raju