Federal Spending Episode 14 Live Webcast on Dec. 12, 2012 The implementation of the Troubled Asset Relief Program (TARP) turned a lot of heads, not so much because the government was offering financial assistance, but because it did so at such an enormous scale. While opponents criticized the bailout for its enduring burden on taxpayers, supporters pointed to its necessity in order to keep the failing economy afloat. Now in its third year, many are left wondering: how successful has the program been and what unforeseen consequences emerged because of it? Join host Eric Kavanagh for this episode of Federal Spending to hear former TARP regulator Amy Poster review the program’s successes and shortcomings. She will also discuss the looming “fiscal cliff” and what its implications could mean for the economy. She will be joined by Bloor Group Analyst and former operations manager Jessica Marie, who will shed light on TARP’s impact on small and mid-sized banks. Robin Bloor, Chief Analyst at The Bloor Group, will offer some perspective on the Federal Reserve's Quantitative Easing programs, and what impact they may have had on inflating the overall value of the stock market. Visit: http://www.insideanalysis.com Photo credits: Svilen Milev www.efffective.com Scott Liddell www.scottliddell.net

1. Federal Spending
Time to Face the Music:
TARP Update and the Fiscal Cliff

2. Host:
Eric Kavanagh

3. Amy Poster Jessica Marie Robin Bloor
Strategic Advisor, Iron Analyst, Chief Analyst,
Harbor Capital The Bloor Group The Bloor Group
Guests

4. The Crisis

5. T
roubled
A
sset
R
elief
P
rogram
The Solution

6. Now What?
'Derek J' by Phil Watt

7. TIME TO FACE THE MUSIC
TARP Update and Fiscal Cliff
Amy Poster
Strategic Adviser-Risk Advisory Services
Iron Harbor Capital Management LLC
aposter@iharborcap.com
(347) 578-1724

8. Amy serves as a strateg
Amy is currently strategic adviser, non-investment activities for Iron Harbor Capital Management, a global macro strategy asset
manger and start up.
In 2010 Amy completed a term assignment at the US Department of Treasury, Office of the Special Inspector General - TARP,
(SIGTARP) in Washington, D.C. and was responsible for the development and oversight of U.S. Treasury's Public Private
Investment Program (PPIP). Amy was also the central subject matter expert for financial markets at SIGTARP, leading critical
audits on TARP recipients and inter-agency investigations.
Prior to her role at SIGTARP, she was a Director in Product Control at Credit Suisse, focusing on risk and valuation for global
credit products within the Fixed Income Division and credit funds within the Alternative Capital Division.
She is a regular contributor to Risk Professional, the magazine of the Global Association of Risk Professionals (GARP), and has
been quoted by major news publications like the Wall Street Journal and Institutional Investor.
Amy holds an MBA with Distinction from Pace University, Lubin Graduate School of Business. She is on the Board of Directors
of High Water Women, and a sustaining angel and member of the Professional Leverage Committee of 100 Women in Hedge
Funds.

9. TARP US TAXPAYER PRICE TAG
TARP TOTALS
as of September 30, 2012
($B)
700.0
475.0
467.0
417.3
327.5
84.2
44.4
Original TARP Amended TARP- TARP Obligated- Total Expenditures TARP Unspent Total Repayments Owed to Taxpayers
Dodd/Frank 13 Programs Balance
Source: SIGTARP Quarterly Report, October 2012
§ As of 9/30/12, 70% of TARP has been repaid
§ 59% or $193.1B have been Capital Purchase Program (CPP) repayments by
large and mid-size financial and bank institutions considered healthy and
viable to stabilize US financial system and allow lending to consumers and
businesses
§ In exchange for TARP funds, the US Treasury received preferred stock from
CPP recipients. Repayments are stock buy-backs or stock auction sales
§ Only $5.5B of the $45.6B allocated to housing support programs have been
spent. $40.0B of the $44.4B unspent TARP funds remain in housing.
§ The majority of TARP programs expire between 2017-2020

10.
The Forgotten Main Street
TARP Disbursements by Category
as of September 30, 2012
Community/
Small
Business
0%
Housing
Programs
2%
Auto
Support
SSFI
(AIG/CiH)
Programs
16%
19%
CPP/PPIP/TIP/Term
Asset
Back
Programs
63%
Source: SIGTARP Quarterly Report October 2012
§ Four main component programs:
² Housing Support Program: Making Home Affordable (MHA), FHA Short Refinance and FHA Hardest Hit Fund
² Financial Institution Support: Treasury directly investing in banks, bank holding companies, and
systematical significant failing institutions (SSFI)
² Asset Support Program: Provide funding to purchasers of assets (TALF, PPIP programs) to open
credit markets and foster market liquidity
² Auto Industry Support Program: Stabilize US auto industry and provide market stability (ASSP and AWCP
programs)
§ TARP skewed to Wall Street bailout (63% + 16%=79%), Main Street 2% for housing and <1% for
small businesses

11. TARP OWED TO US TAXPAYERS
Realized TARP Losses and Write-offs
TARP BALANCES ($B) as of September 30, 2012
Write-offs $22.1B
Balance - Unpaid TARP 84.2
due to
Bankruptcy
19%
Realized Losses and Write-offs 22.1
TARP Owed to Taxpayers 62.1
Realized Losses
Source:
SIGTARP
Quarterly
Report
October
2012
Write-offs due to
Bankruptcy
Realized
Losses
81%
§ $22.1B of TARP funds will not be recovered
§ Largest recorded losses on sale of AIG and GM common stock due to
unfavorable equity market conditions and volatility
§ Many smaller to mid-size CPP participants continue to experience
difficulties and high losses resulting in inadequate capital and
liquidity. Treasury has opted to accept lower valuation or conversion to more
junior form of equity to avert total loss on its investment

12. TARP
REALIZED
LOSSES
AND
WRITE-­‐
OFFS
Realized Losses/Write-offs ($B) % to Total Notes
Auto - Chrysler 1.3 6.0% Of $1.8B Tarp investment, collected
.5B from sale of equity and stock of
UAW Retiree Trust and collateral
Auto - GM 4.3 19.0% Sale of common stock at a loss
SSFI - AIG 4.6 21.0% Sale of common stock at a loss.
Weighted average sale of $30.97 vs.
Treasury cost of $43.93
CPP – 23 Institutions 7.6 34.0% Sale of preferred stock at a loss
Subtotal - Realized Losses 17.9 81.0%
Auto - Chrysler 1.6 7.0% Of $3.5B debt, Treasury accepted
$1.6 as full repayment. $1.9B write-
off
CPP - CIT 2.3 10.0% Bankruptcy, no recovery of $2.3
CPP .2 1.0% Bankruptcy/sale of preferred stock at
loss
Subtotal - Write-offs 4.2 19.0%
Grand Total 22.1 100.0%
Source:
SIGTARP
October,
2012
Quarterly
Report

13. TARP- Prospects 2013 and Beyond
§ Office of Management and Budget (OMB) and US Treasury estimate TARP’s cost at $65B.
Largest losses would be to housing support programs, AIG, and automotive support programs
§ Housing support programs will continue to languish
Unspent
%
to
Expenditures
Category Balance
To
($B)
($B)
Total
Making
Home
4.0
29.9
12.0%
Affordable
FHA
Short
.1
8.1
1.0%
Refinance
FHA
Hardest
Hit
1.5
7.5
17.0%
Fund
§ Current Remaining Treasury Investments:
² AIG - 16% stake
² GM - 32% stake
² Ally Financial - 74% stake
² CPP - Preferred stock in 290 banks
² Community Development Capital Initiative (CDCI) - preferred stock in 80 banks/credit
unions

14. Fiscal Cliff: Where Do We Go From Here?
§ Fiscal Cliff - End of Bush tax cuts, extensions and renegotiation of payroll
tax. $1.2 trillion in automatic government spending cuts (Medicare,
Medicaid, Social Security)
§ A bipartisan agreement is inevitable; what is uncertain is the timing
§ Some after-effects if the fiscal cliff is not averted:
² Market volatility
² Stock market sell-off
² US ratings downgrade
² Recession for first half of 2013

15.
TARP
The
Impact
on
Community
Banks
Federal
Spending
Webcast:
December
12,
2012

16. Agenda
Community
Banks
Defined
Strengths
and
Challenges
MARKETING STRATEGY
The
Impact
of
TARP
APPLICATION GUI

17. What
is
a
Community
Bank?
Independent
Community
Bankers
of
America:
-­‐
Its
members
range
from
insHtuHons
with
$3
million
in
assets
to
those
with
as
much
as
$17
billion
in
assets.
The
Federal
Reserve
Bank:
-­‐
Defines
a
community
bank
as
one
with
assets
up
to
$10
billion.
The
Office
of
the
Comptroller
of
the
Currency
(OCC):
-­‐
Has
a
lower
threshold
of
up
to
$1
billion
in
assets.
The
Federal
Deposit
Insurance
CorporaNon
(FDIC):
-­‐
Also
use
the
$1
billion
threshold
as
an
indicator.

18. Strengths
and
Challenges
Community
Banks
Play
an
Important
Role
in
the
Economy:
-­‐
Both
the
borrower
and
the
lender
maintain
a
stake
in
the
long-­‐term
outcome
of
a
transacHon.
-­‐
Place
greater
emphasis
on
long-­‐term
client
relaHonships,
incorporaHng
informaHon
as
part
of
their
customer’s
profile,
that
is
not
easily
quanHfiable
(such
as
number
of
years
known
by
the
bankers).
-­‐
Community
bank
lending
is
especially
important
to
small
businesses
that
have
few,
or
hard-­‐to-­‐value
assets
as
collateral
and
a
lack
of
audited
financial
statements.

19. Strengths
and
Challenges
Limited
Access
to
Capital:
-­‐
Small
and
mid
sized
banks
need
capital
to
pay
off
Capital
Purchase
Program
(CPP)
investments,
and
raising
that
capital
has
been
a
challenge,
parHcularly
with
weakened
loan
por`olios.
-­‐
Hit
hard
by
the
commercial
real
estate
collapse.
-­‐
According
to
investment
firms,
it
will
take
$23
billion
in
fresh
capital
for
community
banks
to
repay
TARP
and
Small
Business
Lending
Funds
(SBLF);
to
absorb
credit
losses
and
boost
loan
loss
reserves;
and
to
meet
higher
regulatory
capital
raHos.
-­‐
Higher
esHmates
of
capital
needs
(roughly
$90
billion)
came
from
StoneCastle
Partners.

20. FDIC
Failed
Bank
List

21. TARP’s
Impact
A
Mixed
Story:
US
Department
of
Treasury:
“There
are
s>ll
343
banks
remaining
in
TARP’s
Capital
Repurchase
Program.
Most
of
them
are
smaller,
community
lenders.”
An
Important
Challenge:
TARP
does
not
allow
banks
to
recoup
losses
already
incurred
on
troubled
assets,
but
experts
presume
that
once
trading
of
these
assets
resumes,
their
prices
will
stabilize
and
ulHmately
increase
in
value,
resulHng
in
gains
to
both
parHcipaHng
banks
and
the
Treasury
itself.
The
concept
of
future
gains
from
troubled
assets
comes
from
the
hypothesis
in
the
financial
industry
that
these
assets
are
oversold,
as
only
a
small
percentage
of
all
mortgages
are
in
default,
while
the
relaHve
fall
in
prices
represents
losses
from
a
much
higher
default
rate.

22. TARP’s
Impact
Although
poliHcs
played
a
role
in
TARP
funds
distribuHon,
TARP
investments
sHll
managed
to
significantly
boost
bank
loan
supply
during
the
crisis.
Further,
limited
evidence
based
on
the
two
years
aeer
the
iniHaHon
of
TARP
suggests
that
TARP
banks’
loan
quality
has
not
significantly
deteriorated
aeer
TARP
investments.
Without
the
$442
billion
of
new
loans
sHmulated
by
TARP
injecHons
the
economic
condiHons
in
late
2008-­‐2009
could
have
been
even
worse.
One
major
policy
implicaHon
of
these
results
is
that
capital
support
for
banks,
in
addiHon
to
liquidity
support,
is
very
important
in
alleviaHng
credit
crunch
during
banking
crises.
Japanese
experience
in
the
1990s
suggests
that
bank
recapitalizaHon
programs
need
to
be
large
enough
to
revive
bank
lending.

23. TARP’s
Impact
PosiNve
Signs
for
Community
Banks
-­‐
RaHos
of
nonperforming
assets
remain
high,
but
asset
quality
is
stabilizing,
and
bank
provisions
for
loan
losses
are
decreasing.
-­‐
Business
models
are
changing.
-­‐
Liquidity
is
more
of
an
immediate
goal.

24.
Thank
you.

25. TARP and the Money Supply
The Bloor Group

26. US Monetary Base – Long Term
Chart courtesy of ShadowStats.com
The Bloor Group

27. M1, M2 & M3 – The Long Term
M1 = Includes bank reserves
M2 = Money in circulation
M3 = M2 + large and long-term deposits
Charts courtesy of ShadowStats.com
The Bloor Group

28. TARP & The Monetary Base
Chart courtesy of ShadowStats.com
The Bloor Group

29. TARP, Q1, Q2 and M3
Chart courtesy of ShadowStats.com
The Bloor Group

30. In My Opinion….
• TARP was to recapitalize the banks which had
been operating at very “high risk” levels of
leverage
• Even so, many large banks were absorbed by
other less vulnerable banks
• The “printing” of money continued long after
2008 under the title of “quantitative easing”
• The monetary base has expanded very fast in
these past four years
• But most of the money has not made its way into
the economy
The Bloor Group

31. GDP vs. GFD
Chart courtesy of USGovernmentSpending.com
The Bloor Group

32. ROUND TABLE

33. THANK YOU
This episode will be archived at: http://www.insideanalysis.com/webcasts/fedspend/
Image credit slide 4: http://www.efffective.com