The Treasury-created market has benefited a few savvy investors, while saddling taxpayers with a loss. Three private funds, which the report didn’t name, have won almost half the shares available at auction, often netting either a profit on paper or on the resale, according to the special inspector general for the Troubled Asset Relief Program. The Treasury, which has held 185 auctions to date, said it has raised about $3 billion on TARP investments that were originally valued at $3.8 billion, for a loss of $800 million at the auctions.

The Treasury “set up this market where investors could come in quickly and flip and profit,” said Christy Romero, TARP’s special inspector general, in an interview.

– From the Wall Street Journal article: Hedge Funds, Private Equity Win Big at TARP Auctions

One story that I’ve told several times on this site has to do with the day TARP passed. How I got into work extremely early and starting irately yelling about how TARP represented the end of America as we knew it. There weren’t many people on the trading floor at the time, but my boss was there and he told me to take a “walk around the block.” I politely declined, but continued to seethe at my desk.

It’s almost shocking to see the horrific transformation that has occurred in the subsequent six years. It’s so bad, that many people now take things that would’ve been considered unconscionable just a few years ago as part of the “new normal.” There will be a horrible price to pay for this perspective.

The latest scam unveiled by the Wall Street Journal is just the latest example of how and why all the income during the oligarch recovery has gone to, well, oligarchs.

From the Wall Street Journal:

WASHINGTON—A government program to rid itself of TARP investments in small banks has proved a boon to hedge funds, private-equity and other private investors, according to a new watchdog report.

That’s the least surprising thing I’ve read today.

As the Treasury Department looks to exit from its taxpayer-backed investments in these lenders, private investors like hedge funds and others have stepped in and scooped up about 70% of the shares auctioned by the U.S. government. Other buyers included banks, institutional investors and brokers buying shares on behalf of other entities.

The Treasury-created market has benefited a few savvy investors, while saddling taxpayers with a loss. Three private funds, which the report didn’t name, have won almost half the shares available at auction, often netting either a profit on paper or on the resale,according to the special inspector general for the Troubled Asset Relief Program. The Treasury, which has held 185 auctions to date, said it has raised about $3 billion on TARP investments that were originally valued at $3.8 billion, for a loss of $800 million at the auctions.

The Treasury “set up this market where investors could come in quickly and flip and profit,” said Christy Romero, TARP’s special inspector general, in an interview.

As the new owners of the bank’s shares, the funds can profit by reselling them back to the bank at a premium. At one auction, the report said, a bidder won the shares for $3 million less than taxpayers had originally paid. Eight months later, the same bidder sold the shares back to the bank at a $1.6 million profit. Banks sometimes repurchase the shares to avoid dividend payments, which are generally at 9% of principal, or because they don’t want to owe money to the outside investors.

Treasury officials say the risk of losing money at the auctions was necessary to ensure taxpayers weren’t holding the potentially risky bank investments for years to come.

Yes, suckers, it’s for your own good.

A Hildene fund that holds the vast majority of the firm’s TARP holdings gained about 18% last year, an investor update shows, five times the pace for hedge funds overall tracked by HFR Inc.

Further proof, as if you needed any, that crony insider deals is where the real money is.

EJF Capital LLC, the $6 billion Arlington, Va., hedge-fund firm, also holds a large stake in TARP securities, according to investor documents reviewed by The Wall Street Journal.

Naturally, based in Arlington. Right in the belly of the cancer.

“As a banker I was happy, but as a taxpayer I was not at all happy,” said Chief Financial Officer Donald Boyer. “The discount came out of taxpayers’ pockets.”

Yep, that pretty much sums up everything that’s happened since TARP first passed.


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