Too Easy on TARP

A word about a story in yesterday’s WSJ, which calculates that the Treasury Department has earned $8 billion, or 4 percent, on its $200 billion investment in the first three months of the Troubled Asset Relief Program, or TARP.

This is not the longest piece in the world, and not prominently displayed, so I don’t want to make too much of it. And I kind of like the last line, which gives a refreshing pro-government spin:

If things keep going Mr. Paulson’s way, he will leave taxpayers with a profitable legacy. More important, the government will prove itself to be the new “smart money.”

But, yikes. The story makes a dubiously supported claim about TARP performance, then extrapolates it out the window. Here’s the argument:

Consider: With an $8 billion gain on the $200 billion investment Treasury has made so far in banks and companies until Dec. 30, that adds up to about a 4% return — or better than most hedge funds, mutual-fund managers and private-equity firms can claim for last year.

If you annualize TARP’s return on the assumption it will continue to succeed, it would add up to a roughly 16% return on that initial $200 billion investment a year.

To be sure, there are to-be-sure clauses that undermine the premise but are duly noted:

Of course, Treasury started making these investments fairly close to what many believe is the market bottom, while other investors had acquired assets at much higher prices through the crisis and beforehand.

Indeed, the paper the same day noted a markets “turnaround” since November of 19 percent in the Dow, so I’m not sure how 4 percent looks here.

The story continues:

TARP also is doing far better than the average hedge fund, which posted an 18% loss in the year to November, according to Barron’s. As of Nov. 30, the Hedge Fund Research Fund of Funds Composite Index, which measures hedge-fund performance, was down 19%. In addition, hedge funds are suffering record redemptions as $43.5 billion of money left the industry in 2008 up to Oct. 31, according to Hedge Fund Research.

The commenters (a tough crowd) do a better job than I could pointing out other flaws in the return argument.

But the main one is that the original $8 billion figure is an “estimate” from Republican Sen. Judd Gregg of New Hampshire. I have nothing against Republicans or New Hampshire, but that’s it? His word? And wasn’t TARP created precisely because no one knew what the values of these assets were? How about actually disclosing what the assets are so we can see for ourselves?

This is not just some other investment. This was one forced on taxpayers to support a system collapsing under—sorry for the strong language so early in the morning—the weight of its own corruption. It just seems that more rigor and skepticism are needed here, particularly with regard to the secrecy surrounding the program.

Ultimately, sorry to say, the story is of a piece with the Journal’s largely uncritical, access-oriented, coverage of the Treasury itself, as our pal Ryan Chittum (whose large shoes I am filling this morning) has noted more than once, not that the Journal is alone, by any means.

We’ve been tough on the Journal, we realize, but only because our regard for it is high and the need now for its best work is so great. Its Treasury coverage could use some stiffening, to say the least.

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Dean Starkman Dean Starkman runs The Audit, CJR's business section, and is the author of The Watchdog That Didn't Bark: The Financial Crisis and the Disappearance of Investigative Journalism (Columbia University Press, January 2014). Follow Dean on Twitter: @deanstarkman.