Elizabeth Warren’s Congressional Oversight Panel has announced that TARP has so far exchanged $254 billion in exchange for $176 billion worth of assets, which amounts to a cash subsidy of $78 billion (full report). The numbers are based on an analysis of ten specific deals – eight of the largest under the original Capital Purchase Program (not the eight largest, however, as Merrill is missing), plus the second bailouts of AIG and Citigroup. In the former, Treasury received $78 of assets for every $100 expended; in the latter, it received only $41. These results were then extrapolated to the full sample.

This is not really news, since the CBO already forecast a subsidy of $64 billion out of the first $247 billion invested, and the OMB came up with a similar estimate even earlier – and everyone writing back in October realized that the banks were getting a sweetheart deal compared to what was available from private capital, as indicated by Buffett-Goldman and Mitsubishi-Morgan Stanley.

The new report does have some interesting tidbits, however:

• It values the investments by Buffett, Mitsubishi, and Qatar Holding (in Barclays) at $110, $102, and $123 in value per $100 invested.
• It identifies the largest sources of the subsidy as (a) the ability of banks to buy back shares at par on demand and (b) the liquidation costs Treasury would incur if it sought to sell its holdings to other investors.
• It confirms what again everyone already knew, that one reason for the subsidy was the fact that Treasury offered the same terms to all banks (as opposed to getting better terms from weaker banks, which is what the private sector does). However, this doesn’t explain the thing that has always baffled me: why the terms for Citigroup 2 (and Bank of America 2) were even more generous than the terms for the Capital Purchase Program, since those deals were individually negotiated with the government holding all the cards.

There is also this passage that I thought was accurate:

Treasury may have determined that granting the subsidies described above to a group of banks, regardless of their condition, on essentially the same terms was necessary, for one or more reasons, to preserve the integrity of the financial system. Whether the subsidy provided by Treasury to financial institutions represents a fair deal for the taxpayers is a subject for policy debate and judgment, not one that can be answered in a purely quantitative way.

In its public statements about its TARP expenditures, Treasury did not describe the program in terms of subsidization, nor did it explain why some banks should be subsidized more than others. Instead, Treasury repeatedly described investments “at or near par.” . . . [T]he Panel believes that if TARP is to garner credibility and public support, a clear explanation of the economic transaction and the reasoning behind any such expenditure of funds must be made clear to the public.

If nothing else, I suppose this creates a benchmark that the new Geithner Plan will have to beat. I can imagine the people around the conference room: “Must . . . give away . . . less money . . . than . . . Paulson!”

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