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Monday, February 9, 2009

TARP Review: Taxpayers Paid too Much

The Congressional Oversight Panel (hat tip Felix) reports the Treasury "overpaid" for assets from troubled banks in the first round of TARP; especially when compared to investments made from private investors:

The Panel’s review of the ten largest TARP investments the Treasury made during 2008 raises substantial doubts about whether the government received assets comparable to its expenditures.

It doesn't surprise me that TARP paid above market value for assets (intentionally overpaying made it a form of equity injection - I thought this wasn't a bad thing at the time, though what banks have done with that equity has made me rethink that view). As Yves at Naked Capitalism stated back in September:
The intent is to overpay relative to current market prices, and with real estate and the economy headed south, these assets are certain to trade at even lower prices for a very long time. Plus banks will sell the stuff where they think Treasury is overpaying the most, and hang on to those assets that they think have the most upside.
That being said, I completely agree with Felix on his comment that:
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.