The Bailout Bust?
As the Obama administration develops new proposals to help rescue the banking system that could cost taxpayers hundreds of billions of dollars beyond the $700 billion bailout Congress already has approved. Let’s examine what the Troubled Asset Relief Program (TARP) has done for the financial sector. How was the first $350 billion spent and was it successful? Where will the next $350 billion go?

Where’d it Go?
Here is some of the accounting of the first $350 billion: approximately $90 billion has gone to Citigroup and Bank of America. They are just two of the 200+ thrifts who have received $191 billion total from the program.

Horrible results so far!
TARP funds may have saved some of these banks from failing; bank stocks, however, including Citigroup and Bank of America stocks, have weighed down the market this month. The common stock of the major banks tracked by the Dow Jones Wilshire U.S. Banks Index lost about $287 billion in value from January 2-21 – about 43%.

According to fool.com, here is how the top 7 banks have fared since the Sept 19, 2008 announcement of TARP:

1. Bank of America: received $45 Billion in TARP and the stock is down 87%
2. Citigroup: received $45 Billion in TARP and the stock is down 87%
3. JP Morgan Chase: received $25 Billion in TARP and the stock is down 61%
4. Bank of NY: received $3 Billion in TARP and the stock is down 47%
5. Morgan Stanley: received $10 Billion in TARP and the stock is down 52%
6. Wells Fargo received $25 Billion in TARP and the stock is down 68%
7. Goldman Sachs received $10 Billion in TARP and the stock is down 59%

Data as of 1/21/09 for more info: CLICK HERE

What’s next?
President Obama plans on allocating $50 billion to $100 billion in TARP funding toward foreclosure relief for homeowners. It probably won’t stop there as Treasury Secretary appointee Tim Geithner has some controversial new ideas on how to spend TARP money.

The government to create a “bad bank”?
Now there is talk of creating an “aggregator bank” with some of the $350 billion left in the program. The idea is that this “aggregator bank” could buy up billions in toxic assets that keep undermining bank capital. (Memories of the Resolution Trust Corporation come to mind.) The upside to the idea: if it works, banks could lend with less fear and more comfort. The downside to the idea: it sure would be rough on shareholders. It is estimated that it could take $3,5 trillion or more to buy up these troubled assets.

Is this the beginning of socialism?
Should the government even be involved in running banks? The word nationalization comes to my mind. Think about it. It’s happening in Europe. This means our federal government would take over – own and directly control – certain banks. The governments of Ireland and Great Britain have recently nationalized large chunks of their financial systems. Nationalizing banks would be an extraordinary step toward socialism. Many who feared socialism under an Obama administration may be getting exactly what they feared. Tomorrow I will share some additional thoughts on my concerns about where the U.S. is heading.