CNBC: Breathless Liesman Exclaims: 'It's Official, The NY Fed Has Made An $18 Billion Profit On AIG'
Just to be clear, this is the Fed's side of the AIG bailout, not Treasury's, which itself injected $41.5 billion into AIG and still owns 61% of the company. If Treasury sold at today's prices it would earn approximately $5 billion on AIG.
And to be fair to the Fed, Liesman quotes a final profit of slightly more than $9 billion, but the NY Fed also made $8.2 billion in interest and fees from a credit line extended to AIG that was terminated last year. CNN quotes the correct figure of an $18 billion profit for the New York Fed.
However, the NY Fed also allowed Goldman et al. to keep $35B in collateral on the $62B in CDO's (face value) for which they paid the market price (at the time $27B). In other words, they may have made a "profit" on the $27B they paid for the CDO's, but AIG had already effectively spotted them $35B in unrecovered collateral towards the purchase price.
Regardless, the banks still got tens of billions in taxpayer protection on the decline in the value of those CDO's. Clearly another Geithner/Fed "success."
By law the Federal Reserve must turn over all profits to the U.S. Treasury at the end of every fiscal year. In January, the Fed sent $77 billion in 2011 profits over to Geithner.
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See this table from Pro Publica:
Aug 23, 2012 at 1:27 PM
Reader Comments (7)
http://www.nytimes.com/2012/01/11/business/economy/fed-returns-77-billion-in-profits-to-treasury.html
http://buzz.money.cnn.com/2012/08/03/aig-treasury/?iid=EL
http://money.cnn.com/2012/08/23/news/economy/federal-reserve-aig-bailout/index.html
http://www.propublica.org/article/how-big-is-aigs-bailout-really-707
snip
Quietly, the Treasury Department is engaged in another bailout of the banks. This time, it’s America’s small banks that are the lucky duckies.
The federal government still holds investments in hundreds of small banks around the country in the Troubled Asset Relief Program, otherwise known as the bailout. In an effort to wind down TARP, the government is trying to sell off its holdings of preferred stock of the remaining smaller banks.
The problem is that the Treasury Department isn’t getting great bids on some of the bank paper, even on the shares of banks with strong profits and strong capital. When the government sold its holdings in MetroCorp Bancshares of Houston this month, the bank itself bought back most of it — at 98 cents on the dollar. Wilshire Bancorp of Los Angeles bought back its paper at 94 cents on the dollar. The Treasury Department sold preferred shares of Ohio-based First Defiance at 96 cents, and Peoples Bancorp of North Carolina at 93 cents. All of these are regarded as healthy.
Who makes up the difference? Taxpayers, of course.
Treasury officials say that is what the market is willing to bear. But the government doesn't have to sell now, and it doesn't have to settle for less than a full repayment.
Why should healthy banks or hedge fund investors get a gift so that the Obama administration can score some political points by raising the number of banks that have left the program? For all the generous breaks that the government gave the gargantuan banks in the bailout, they all at least paid TARP back at 100 cents on the dollar. Why shouldn't the small ones pay 100 cents on the dollar like the big boys?
more
http://dealbook.nytimes.com/2012/08/22/a-quick-end-to-tarp-means-a-smaller-payoff-for-taxpayers/
The State of the Bailout
OUTFLOWS: $602 billion This includes money that has actually been spent, invested, or loaned.
INFLOWS: $391 billion Money returned and paid to Treasury as interest, dividends, fees or to repurchase their stock warrants.
http://projects.propublica.org/bailout/main/summary
FLASHBACK
Banks are using government loans to repay TARP
http://www.washingtonpost.com/blogs/ezra-klein/post/the-government-has-recouped-tarp-money-by-accepting-other-government-funds/2012/03/09/gIQAHgdT1R_blog.html