TARP begins to run low
According to The Wall Street Journal, "The U.S. Treasury Department estimates that it has about $134.5 billion left in its financial-rescue fund, which would mean that about 81% of the $700 billion program has been committed." Some of those commitments may change. Some of the TARP funds already committed may be paid back by Goldman Sachs (GS) and others of the more healthy banks. But, the amount of capital in the TARP is running low.
Where does that leave the Treasury? Perhaps in a bind. Based on trading in bank stocks, there has been some optimism that the worst of the hundreds of billions of dollars in losses from mortgage-backed securities are over. But banks may face fresh losses. Some of these will come from consumer lending. Some will probably come from commercial loans.
The great irony is that the federal government's program to buy troubled assets from banks in a public/private partnership may be the biggest cause of bank losses in 2009. If the price that hedge funds and private equity firms pay for these assets is well below that amount at which they are carried on bank balance sheets, the financial firms will have to post this difference as a loss. Those losses could add up to tens of billions of dollars. If so, the banks will have to raise more capital.
The TARP may have saved the banking system, but the plan to buy toxic asset may cripple it again.
Which means that the TARP may require more capital to provide to banks.
Douglas A. McIntyre is an editor at 24/7 Wall St.