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He must feel foolish

Posted: July 24, 2010 5:38 p.m.
Updated: July 25, 2010 4:30 a.m.
 

Regarding “Sorry for the bad news” (June 5): In his letter, Paul Henry Sibek tells us, “The government made a $3 billion profit from selling Bank of America stock because of the success of the bailout.”

Not true.

The bank received about $45 billion of bailout funds (TARP), most of it in 2008, when George W. Bush, not Barack Obama, was president of the U.S. 

In return, the government received “warrants” (contracts) which entitle the owners of the warrants to purchase shares of the bank’s stock in the future at set prices.

The government then sold the warrants to investors for $1.5 billion. Thus, the government sold no stock, it sold warrants.

The government did not make a $3 billion profit on stock sales. It sold warrants for $1.5 billion, half of what Sibek claims.

In his letter, Sibek concedes “the bailout will cost $87 billion” so how can there be a “$3 billion profit,” how can the bailout be “a success?” Bank of America paid back all of the TARP funds it received from the government, cut back on loans and drove the economy down.

So the  result of the TARP funds received by the bank was to damage the economy, and there is no guarantee the purchasers of the warrants will ever make a profit.

Contrary to Sibek’s claim the bailout was a “success,” the Congressional Budget Office and the Office of Management and Budget now estimate the cost to the government over the life of the TARP program will be $109 billion.

That’s 1,000 times $1 million times 109. Sibek claims the government “could get back $40 billion” of TARP funds from the GM bailout.

Meanwhile, GM claims it paid off its TARP obligation. Yeah — with funds from another TARP account. That’s akin to paying off your Visa card with your Visa card. Both the CBO and the OMB estimate the loss on the TARP funds made available to GM will exceed $30 billion.

I guess Sibek must feel as foolish as he writes.

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