The Bailout Swindle, Act II

Let our journalists help you make sense of the noise: Subscribe to the Mother Jones Daily newsletter and get a recap of news that matters.


Numerous are the ways the government’s multi-trillion-dollar bailout has scammed taxpayers. One estimate, from the Congressional Budget Office, says the taxpayer-funded TARP could subsidize bailout recipients by a whopping $356 billion by 2010. Now, eight months into the bailout and on the back of the Treasury’s much hyped stress-test results, several of the largest recipients are itching to return their bailout billions. Early next week, the Federal Reserve will announce which banks can begin repaying their TARP stock investments using the Fed’s updated criteria.

But to completely extract themselves from government control, the banks will also look to buy back their government-held warrants. Warrants are basically stock options to buy shares at a set price over a certain period of time. (In this case, that period is 10 years.) The government initially purchased banks’ warrants as part of its plan to recapitalize them and bolster their financial health. Banks now want to buy those warrants back—and it’s here that taxpayers could lose big again.

Under Treasury guidelines, each financial institution must hire an independent advisor to calculate a “fair market value” for the warrants it wants to repurchase. The Treasury must also calculate its own value. If the two values differ, the bank and the Treasury will get together to settle on a “fair” price. If in fact both sides settle on a truly fair value for the warrants, taxpayers could get their investment back. But if the Treasury concedes to the bank and drops the price, as has been the case so far, it will be the taxpayer who absorbs the loss.

Take the repayment process for Old National Bancorp, one of the first publicly traded banks to repay its TARP investment. It bought its warrants back for $1.2 million, even though a separate analysis valued them at close to $6 million. Several other banks, including Iberiabank and Sun Bancorp, also got juicy deals, paying about 77 percent of what their warrants were worth, according to one analysis.

Of course, the value of these repurchased warrants was miniscule compared to those of financial giants like JP Morgan Chase or Morgan Stanley, which are estimated to be in the realm of $1 billion. Here’s what a similar scenario would look like with the mega-banks, according to a Bloomberg News analysis:

Under the Old National warrants formula, Bank of America Corp. would save $2.03 billion, followed by Wells Fargo & Co. at $1.48 billion and JPMorgan Chase & Co. at $1.46 billion. Morgan Stanley’s benefit would be $983 million, Citigroup Inc.’s would come in at $965 million and Goldman Sachs Group Inc. would have $693 million.

Then again, given that the whole bailout has been a losing bet for taxpayers, what’s another $7.5 billion down the drain?

IT'S NOT THAT WE'RE SCREWED WITHOUT TRUMP:

"It's that we're screwed with or without him if we can't show the public that what we do matters for the long term," writes Mother Jones CEO Monika Bauerlein as she kicks off our drive to raise $350,000 in donations from readers by July 17.

This is a big one for us. It's our first time asking for an outpouring of support since screams of FAKE NEWS and so much of what Trump stood for made everything we do so visceral. Like most newsrooms, we face incredibly hard budget realities, and it's unnerving needing to raise big money when traffic is down.

So, as we ask you to consider supporting our team's journalism, we thought we'd slow down and check in about where Mother Jones is and where we're going after the chaotic last several years. This comparatively slow moment is also an urgent one for Mother Jones: You can read more in "Slow News Is Good News," and if you're able to, please support our team's hard-hitting journalism and help us reach our big $350,000 goal with a donation today.

payment methods

IT'S NOT THAT WE'RE SCREWED WITHOUT TRUMP:

"It's that we're screwed with or without him if we can't show the public that what we do matters for the long term," writes Mother Jones CEO Monika Bauerlein as she kicks off our drive to raise $350,000 in donations from readers by July 17.

This is a big one for us. So, as we ask you to consider supporting our team's journalism, we thought we'd slow down and check in about where Mother Jones is and where we're going after the chaotic last several years. This comparatively slow moment is also an urgent one for Mother Jones: You can read more in "Slow News Is Good News," and if you're able to, please support our team's hard-hitting journalism and help us reach our big $350,000 goal with a donation today.

payment methods

We Recommend

Latest

Sign up for our free newsletter

Subscribe to the Mother Jones Daily to have our top stories delivered directly to your inbox.

Get our award-winning magazine

Save big on a full year of investigations, ideas, and insights.

Subscribe

Support our journalism

Help Mother Jones' reporters dig deep with a tax-deductible donation.

Donate