Tag Archives: TARP

Idea to revive real estate market

The most read article posted on Real Clear Markets recently was one from Forbes with an idea about how to move capital trapped in the real estate market into more productive sectors of our economy.

Here’s an outline of the article:

  • Problem:  Underwater loans for commercial properties that are either overbuilt or vacant.
  • Goal:  Convert ‘in the red’ properties into green space and hold for development.
  • Solution:  Permit banks to deposit some of their excess real estate securities with the Fed, remove those properties from the market, convert to green space, and hold until the market recovers. A $200 billion land bank fund, provided by the banking system and backed by the Federal Reserve, would be established to help finance this conversion.
  • Effect on Fed:  The Fed would be shifting some of its Mortgage Backed Securities (MBS) purchases to new Land Backed Securities (LBS) – long-term assets backed by the eventual redevelopment of most of the green space. This would be a straightforward way to redirect capital out of bad investments and eye sores like dead-end malls, empty stores, and vacant factories, so that the capital can be redeployed into our new asset-light economy.
  • How this differs from TARP: The stimulus money changed nothing. Jobs were protected but not stimulated. No one gets anyplace faster, no new productivity improvements were generated like the Interstate Highways did. Stimulus projects were not transformational.  Converting real estate to green space and freeing that capital would have three positive effects.
  1. Direct job creation for demolition and green space conversion.
  2. Strengthening the banking system by removing bad real estate loans so banks can make new loans.
  3. Real estate owners will spend and invest more, knowing their properties have stabilized in value.

The article by Michael Messner — who runs a hedge fund, Seminole Capital Partners — is copied in full at end of post. Continue reading

Don’t carp about TARP

Perception: The Troubled Assets Relief Program [TARP], created in October 2008 at the height of the financial crisis, was a disaster and cost the taxpayers $700 billion.

Reality: Out of the $700 billion authorized, only $410 billion was used. All but $19 billion of that amount has been recuperated. TARP basically worked as intended.

The economist Robert Samuelson examines how and why the TARP Federal program cost much less than initially feared. Key points:

  • TARP invested $245 billion in banks [99% recovered].
  • TARP invested $165 billion in other programs.
  • Perception remains that TARP creates a problem economists refer to as a moral hazard.
  • Moral hazard defined – The risk that a party to a transaction has not entered into the contract in good faith, has provided misleading information about its assets, liabilities or credit capacity, or has an incentive to take unusual risks in a desperate attempt to earn a profit before the contract settles.

The entire Samuelson column is copied at end of post.
Continue reading