blog.hsh.com

Ah yes, time for my favorite post of the week: our weekly recap. Why is it my favorite? It means another week has elapsed, and it’s time for the weekend.

Here what was new this week on blog.HSH.com:

Friday:

I’ve stumbled across a couple of seemingly conflicting stories this afternoon that have left me asking myself, “Does Washington never want TARP to be fully repaid?”

Sounds crazy, right? While we know taxpayers want the money to be paid back, we thought Washington’s TARP tax — known as the “financial crisis responsibility fee” — was an assurance that the country wouldn’t lose a dime on the money that was pledged to the banks, both large and small.

But it seems that may no longer be the case. Treasury Secretary Timothy Geithner indicated today that if all the TARP money isn’t repaid within 10 years, that the Treasury could extend the tax to ensure it would be:

In February of 2009, President Obama announced the Home Affordability and Stability Plan (HASP). The plan was broken down into three main initiatives: 1)a “low-cost” refinancing program “that will help as many as 4 to 5 million responsible homeowners”; 2)a “stability initiative” designed to modify millions of home loans; 3)a “strengthening” of Fannie Mae and Freddie Mac.

Let’s see here: the touted refi program — HARP — is fading into the sunset (no one even talks about that program anymore — how many homeowners have even used this, does anyone know?), and Fannie and Freddie’s future has been shrouded in a cloud of uncertainty. The GSEs have recently been extended an unlimited amount of taxpayer dollars, suggesting that their future losses will be even steeper than the $400 billion they were originally promised.

“TARP will live on for years.”
-Elizabeth Warren

President Obama announced a plan today that will tax the nation’s largest banks, financial firms, and insurers in order to recoup costs associated with the now expired TARP. Oddly, U.S. automakers have been omitted from paying the tax (can’t say we didn’t warn you).

As it stands now, the 10 largest institutions in the U.S. will have to pay 60% of the tax’s total cost. TARP losses are currently estimated to be roughly $117 billion. According to the Wall Street Journal, “…the tax will stay in place until all of the costs are recaptured.” Here are the tax’s specific details:

UPDATE1: When the U.S. pledged its unwavering financial support to Fannie Mae and Freddie Mac on Christmas Eve 2009, the decision brought to light one simple fact: The losses Fannie and Freddie have sustained and will sustain in the near future, will likely cost us more than $400 million (the sum the two were previously promised to cover losses). One former general counsel at the Treasury Department seems to agree 100%:

Taxpayer losses from supporting Fannie Mae and Freddie Mac will top $400 billion, according to a former general counsel at the Treasury who is now a fellow at the American Enterprise Institute.

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Washington’s transition from their seemingly unwavering support of Wall Street to a new dedication to the American consumer has been rather slow, but the momentum is picking up. While the House of Representatives passed a bill on Friday that included the creation of the Consumer Financial Protection Agency (CFPA), President Obama met with the nation’s largest banks yesterday, asking them to step up their lending to consumers — both homebuyers and small business owners alike.

Perhaps ironically, the president’s plea to the banks comes at the same time many of them have (or are working hard to) paid back TARP funds in order to get out from under these kinds of pressures:

Last week we asked if the White House jobs summit would be able to yield a cost-effective solution to stem job loss. Judging by the president’s proposals to increase employment outlined in a speech Tuesday, the answer seems to be “not really”:

The president’s proposals addressed three main areas. He focused primarily on help for small businesses, targeting them with tax credits to encourage hiring and unused Wall Street bailout dollars to increase lending. He also backed a one-year elimination of the capital gains tax on gains from new investment in small business stock and other measures.

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Hearings in Washington this week have revved up discussion surrounding a proposed plan from Wall Street designed to rid private institutions of their toxic assets. Yesterday we wrote that some home-loan lenders may be finally ready to pick up the pieces and move on; well it seems as though Wall Street firms may be ready to do the same.

Wall Street seems to have found a way to save and make money on these risky investments, but bank regulators are worried that these transactions could lead to a copycat crisis:

Towards the end of 2008, the meltdown in the financial and mortgage markets led to a credit crisis that froze lending nationwide. For a while now analysts have been forecasting another looming credit crisis — this time it has to do with the commercial real estate market. Finance and economic blogger Calculated Risk predicted declines back in December 2008.

However, what makes this “latest” threat to U.S. lending institutions particularly dangerous, is that several Federal entities — from the Federal Reserve, to the Treasury, to the FDIC — are financially stretched to their limits, and may be unable or unwilling to provide adequate support to lenders if or when the time arises.

When the nation’s banks invested heavily in the private mortgage market, taxpayers were left to pay the $700 billion tab it has taken so far to clean up their mess. Now, with about 8,500 federally-insured banks again investing heavily in the shaky American mortgage market, who do you think will be left to pick up that tab when or if that market collapses? Ding, ding, ding — you guessed it — the American taxpayers!

During the housing boom, the mortgage-backed securities in which the large banks invested in were chock full of subprime and poorly-underwritten loans. Since the collapse of the housing market, lenders have ceased writing new subprime loans or any which can’t be easily sold. All the way back in January we predicted that a lender or lenders would eventually come along to cater to the under-served, “non-prime” audience. That lender turned out to be the Federal Housing Administration (FHA), a.k.a the Federal government.