TARP

Have you ever wondered what happened behind the scenes after TARP was passed by Congress in late 2008, when TARP money was disbursed to Wall Street banks?

In my first exclusive thewallstreetgeek.com video, we see the nail-biting negotiations between Treasury Secretary Henry “Hank” Paulson, and Goldman Sachs CEO Lloyd Blankfein:

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Ten bailed-out banks were deemed healthy enough to return almost $70B in TARP money to the Treasury:

  • JP Morgan Chase
  • Goldman Sachs
  • Morgan Stanley
  • American Express
  • Capital One
  • US Bancorp
  • Bank of NY Mellon
  • BB&T
  • State Street
  • Northern Trust

Interesting scenario because if I were offered a loan at 5%, I would hang onto it.

Then again, this particular loan had clauses that restricted compensation and allowed government and ultimately public scrutiny over spending patterns. So it’s no surprise that these notoriously private banks treated TARP like a hot potato.

It also doesn’t hurt that an early payback makes these banks look good. Which in turn may bolster their stock prices–an example of fiscal strategy impacting PR.

However, although it appears that the umbilical cord to the government was completely clipped by returning TARP funds, a few of these banks are still receiving government aid. For example:

  1. The Temporary Guarantee Liquidity Program: Among other things, this program supports capital-raising via commercial paper, et al, to help banks maintain their capital requirements and keep their doors open.
  2. TARP Payments from Other TARP Institutions: AIG still has its TARP money. It also still has credit default swaps on its books, and owes payment to counterparties (which can be other banks).

    It’s widely discussed, for example, that Goldman Sachs will receive additional TARP money as the counterparty on AIG derivative contracts. But there’s nothing wrong with that–if you bought an insurance contract and needed it paid out, you would be entitled to receive the payout no matter the source.

It’s a positive step that these banks are returning TARP money. But the recovery isn’t over yet for these banks.

And as a side note, imagine if this returned TARP money were loaned at a low interest rate to consumers with mortgages and credit card debt so that consumers could payback their high interest loans early?

It wouldn’t be completely equitable since it’s our taxpayer money anyway, plus some taxpayers paid more than others. Nevertheless, it would be an offer none of us would probably refuse.

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zzgeithner Exclusive Video! Inside the TARP NegotiationsEarly in my career when I was at Morgan Stanley, the head of my department gathered a handful of us “next generation managers” into his office.

There was a big issue that needed solving by fresh, young, brilliant minds…but he called us in instead icon biggrin Exclusive Video! Inside the TARP Negotiations

He wanted an action plan for solving the problem by the time the next senior officer meeting occurred in two months, at which we’d present the solution.

The division needed a solution. I can’t get into the details, but funding money for our division was riding on this solution. Not to mention the confidence of the people giving us this money.

And it was a tough problem that the senior managers couldn’t solve. But we were young, not affected by past failures and had energy. So a group of us met weekly for two months to draft a solution.

We talked to in-house experts to test ideas. We did the prototypical late-night Chinese-food-fueled brainstorming that you see in bad movies about corporate life.

Yet as confident as we were, we didn’t want to set a line in the sand at that meeting. What if we were wrong? Then the senior managers would laugh at us. So we kept it high level, putting our toe in the water with enough room to change course without appearing naive if they found a hole in our plan.

A week before the senior officers’ meeting, we presented the solution to the head: a forward-looking, 6-page document that outlined on a high-level what the next steps may be as we gathered more practical evidence.

Honestly, that thing was jammed-packed with SAT words and pushed the envelope on grammatically-correct sentence construction. Because honestly, we didn’t have a solution. But if we wrapped an idea with enough language, who would have the balls to say that they didn’t understand what we were talking about?

The next thing that happened demonstrates why business-types run businesses that make money, and government officials run the government which doesn’t have the same bottom-line accountability standards.

The head of the department ripped into us, pushed the senior officers’ meeting ahead two weeks, and demanded a precise plan that could be put into action the next day after that meeting. He wouldn’t even let us present what we had. It had to be a concrete plan.

Forced to develop a precise plan, we did–we drew the line in the sand. And you know what? At the meeting, it didn’t matter if we were precisely right or wrong. We demonstrated that we understood the problem well enough to present a solution that addressed the issues. That engendered a great deal of confidence–that hey, there’s a precise path forward that will lead to the discovery of something that may really work.

My jaw dropped when Secretary Geithner gave such a high-level speech on February 10th with the next steps in solving the financial crisis from the bank perspective. And the fact that he’d been on the job for 2 weeks doesn’t fly with me because you’re put in a senior position to deliver on day 1 based on your experience.

Put him in a Morgan Stanley or Goldman Sachs and he would’ve been ripped on even harder than the media has.

And don’t think poor Tim. We’re only pushing him because we know that he can deliver. He probably just needs to believe that he can.

So draw that line in the sand. Put together a Microsoft Project plan with dependencies, budgets and a timeline. And if you need help drop me a line. You can do it.

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