TALF Underway – Help for ‘Main Street’

On March 3, the Federal Reserve announced the revisions to the Term Asset-Backed Securities Loan Facility (TALF). The TALF component of the Consumer and Business Lending Initiative (CBLI) is designed to provide up to $1.0 trillion in lending capacity to consumers and small businesses. Traditional consumer financing, credit card loans, auto loans, student loans, Small Business Association loans rely heavily on the Asset Backed Security (ABS) facilities for funding. The Fed estimates that roughly one-quarter of all non-mortgage consumer loans are financed through ABS SPVs.

Importantly for the March revision, the hair cut and interest rates on the student loans and SBA-guaranteed loans was reduced. Interestingly, the Government’s collateral on the TALF loans are loans which carry and explicit government guarantee. The TALF loans are non-recourse, in the event of default, the Government has the right to seize the collateral (the loans) in order to make good on the TALF loan. Interestingly, as the loan default trickles down the chain, the Government will effectively be paying the left pocket from money in the right pocket. This government guarantee was the rationale for the reduction in rates and haircuts; hopefully we do not see the left-to-right pocket exchange. The potential for a trillion in financing should help expand the economy; as currently drafted, the TALF will provide $200 billion in loans.

Protection for the Tax Payer
As previously mentioned, a few loans carry explicit guarantees, SBA and student loans; loans that do not carry the guarantee must be rated AAA by two approved credit rating agencies. Substantial criticism has been given to the rating agencies handling of the securitized pools of loans; however, absent a better risk assessment system, the AAA rating provides some assurance for tax payers. Second, the “haircut” mentioned above in effect over-collateralizes the TALF loans. For example, a student loan with a 2-3 year ABS life carries a 10% haircut. In order to receive a $90 million dollar loan under TALF, the investor must pledge $100 million in collateral. Lastly, the Government receives an interest rate that corresponds with the risk of the underlying assets. The prime student loan above would be priced at LIBOR plus 50 basis points.

TALF Underway
On March 19, the Fed announced nearly $4.7 billion in loan requests. Requests were linked to $1.9 billion in auto-loan securitization and $2.8 billion in credit card related facilities. Interestingly, no student loans or SBA guaranteed loans were pledged in conjunction with loan requests. As noted, loans need to carry a AAA rating; however, loans downgraded after initial funding remain eligible. Thus, financial institutions accessing TALF funds will likely pledge loans which they perceive to be riskiest, mispriced, or incorrectly rated. Financial institutions are likely most concerned with the state of the over-levered general consumer, pledging credit card and auto loans.

In conjunction with the announcement of initial funding, the Fed announced four additional categories eligible under TALF: (i) ABS backed by mortgage servicing advances; (ii) ABS backed by loans or leases relating to business equipment; (iii) ABS backed by leases of vehicle fleets; (iv) ABS backed by floorplan loans As the pool of eligible loans expands, so does the Feds balance sheet. The exploding balance sheet is a little less daunting when an organization is back stopped by a printing press, not to say the US should or will inflate its way out of the debt problem.

A Scaffolding of Cards for the House of Cards?
Interestingly, the off balance sheet SPVs that appear to have created the credit crisis will be the primary tool for supporting TALF. The Federal Reserve Bank of New York (FRBNY) will create an SPV to hold all ABS collateral received. The SPV will be funded with up to $100 billion on subordinated loans from the Treasury through the TARP and the FRBNY will fund the SPV with a senior loan. In a similar structure to other securitization facilities or CDOs, the investors are ranked and prioritized. The FRBNY holds the most senior position and claims first priority to all cash flows to the SPV, the Treasury holds second priority (mezzanine position), and the residual third priority (equity position) is shared by the Treasury and FRBNY. The scaffolding of cards should hold up, securitization and pooling of assets was not the problem, pricing of the pools was the problem.



On balance TALF should spark consumer and small business lending and is a start down a long, winding road to recovery. Access to credit will enable small businesses to grow and employ Americans. The credit is necessary for capital equipment purchases to create goods and provide services for export and domestic consumption. Purposed slogan: TALF - a $200 billion spark plug for autos.

Bailing out banks: who's in, and who's out?

Wall Street's latest fascination with Washington comes over the subject of bank nationalization. Senator Christoper Dodd, Chair of the Senate Banking Committee, suggested nationalization might be necessary, sending the markets plunging. The White House wasted no time in responding at the daily press conference, noting, "[T]his administration continues to strongly believe that a privately-held banking system is the correct way to go, ensuring that they are regulated sufficiently by this government. That's been our belief for quite some time and we continue to have that."

Nationalization is scary to banks because it means some investors will be saved while others are wiped out. At the extremes, who's in and who's out is obvious. Holders of common equity will almost definitely be wiped out in nationalization; deposit holders would be made whole. The intermediate providers of capital, senior and subordinated creditors, counterparties to derivative contracts, trust-preferred holders, and preferred stock holders, have differing levels of ambiguity as to whether they would be bailed out, wiped out, or something in between. This ambiguity relates to the property rights the holders of these securities possess. This ambiguity causes tremendous problems.

First, capital that has no restrictions on its withdrawal will be withdrawn. That is, there will be a bank run. Since the FDIC insures deposits, retail deposits won't run, but other short-term funding will either be withdrawn, or for short-dated maturities, will be difficult to refinance with new debt (roll over). The FDIC stepped in to limit the difficulty in rolling over senior debt by agreeing to insure this debt through the Temporary Liquidity Guarantee Program, solving in part this problem.

The second problem is that existing securities will trade with every rumor floating around as to whether the banks will be nationalized or not, AND on every rumor of whether a particular secruity will be included in the bailout or not. This particularly relevant post on the very good Bronte Capital blog describes the problem with including different securities in different situations, as shown through FDIC takeovers of banks. Indeed, this is evident in the common stock fluctuations of the major banks through the course of last Friday - the higher a chance of nationalization, as determined by Dodd's statements, the lower the share price.

It is worth noting that while management is concerned about the common equity price (WSJ, gated) to which their personal economics is tied, the common equity price is of less concern to regulators. Banks could continue to operate at any equity price, as long as the creditors of the bank do not take the low equity price to be indicative of an imminent default on the bank's debts.

The third challenge is that it makes it difficult (impossible?) to attract new private capital. New capital providers are hesitant to invest when they face the possibility of losing their capital to nationalization.

Each statement by regulators, legislators, or the Administration increases the ambiguity banks operate under, necessitating new bailout programs, increasing security volatility, and limiting the ability of banks to raise new private capital. The Administration's current approach, denying nationalization as a possibility (even while other key decision makers discuss it's virtues), has little credibility. The market's are understandbly sceptical that the Administration would rule out a course of action that many noted commentators are advocating for. Instead, the Administration should clarify the property rights of these security holders under any circumstance.

Exactly what rights need be clarified? First, what banks would be considered for nationalization, if it should come to that stage. Clearly the government would have criteria as to what banks would be nationalized (or bailed out in some other fashion). Clarifying these criteria will allow borderline banks to have a clearer sense of their future. Second, and perhaps most importantly, the government must clarify what classes of securities and other claimants would be bailed out. A best guess, as a simple starting point, is that existing depositors, counterparties, and senior creditors would be made whole (including rollovers of existing debt), while subordinated debtholders and all forms of equity-holders (including preferred, trust, common, and all options and warrant holders) would be extinguished.

Merely this clarification would have several immediate effects. Debt holders would freely leave capital committed and would permit rollovers of maturing debt. Securities markets would immediately adjust: bank securities that would be protected under nationalization would trade to prevailing yields. Equity holders, while concerned about nationalization, would benefit from the banks' ability to again conduct business free from uncertainty of solvency concerns.

Paired with this announcement, the government could encourage additional private capital into the banking market by allowing equity capital issued after the announcement to be put back to the government at par (or some fixed ratio to par, say 90%) upon a nationalization event in the next five years (at which point it would convert to common equity). With this effective government guarantee in place, the banks would be able to raise equity capital in the private markets. If nationalization never occurs, the government never intervenes or uses any taxpayer capital. If banks are nationalized, it would not be due to the very fear of that nationalization, but rather a belief that banks are deeply insolvent and that no injection of capital would produce an attractive return. (That is, losses at the bank would be so great as to swamp earnings for years to come).

This approach would minimize the disruption caused by nationalization rumors, would reopen the private capital markets, and would help to align interests. Managers could be compensated on un-guaranteed equity, re-establishing the investors balance between fear and greed. They would have the incentive to avoid nationalization by raising substantial new capital and making prudent lending decisions - they would fear losing their equity stake. On the flipside, they would want to deploy capital intelligently to maximize the return to their equity stake - the greed to maximize their options.

This solution is clearly a bridge approach - the market and regulatory failures that brought the current crisis into existence still need remedy. Other issues would also need to be considered - restarting lending, moral hazard, and agency costs - before implementation. But, this approach would stabilize markets, limit the intervention of government into the private markets, and rely predominately on private capital, virtues all.

The Hedge Fund ‘Transparency’ (Regulation) Act of 2009

On January 29, Senators Grassley and Levin introduced The Hedge Fund Transparency Act, a revision to Grassley’s previously proposed legislation – Hedge Fund Registration Act of 2007 (S.1402). The 2009 Act calls for an amendment to the Investment Company Act of 1940. While titled a ‘transparency’ act, the proposed bill effectively broadens the regulatory authority of the SEC. The Act of 1940 defines an investment company and details the regulation set forth by U.S. Securities and Exchange Commission (SEC), primarily overseeing traditional mutual funds and closed-end funds. The act as currently written allows hedge funds to avoid being listed as investment companies because they are not open to the general public and often via pooled entities have fewer than 15 investors. Hedge Funds are only open to “qualified purchasers” or sophisticated investors (pension funds, endowments, wealthy individuals, etc) and thus are allowed to engage in higher risk, higher reward investments without the regulatory burden of the SEC.

As mentioned, hedge funds are currently not “investment companies” and are thus not subject to SEC oversight. Under the proposed bill, hedge funds would qualify as investment companies, but with special qualifications reducing the required level of disclosure and amount regulation. The availability of mutual funds to retail investors warrants the high degree of regulation and disclosure. The act would require all hedge funds to disclose the following:

(a) List the companies and natural individuals who are the beneficial owners of the fund
(b) Explain the ownership structure
(c) List of affiliated financial institutions
(d) Minimum investment commitment required from an investor
(e) Total number of investors in the fund
(f) Name of the fund’s primary accountant and broker
(g) Current value of the fund’s assets and assets under management (AUM) – effectively disclosing returns

Grassley and Levin provide three arguments for amendment, two of which have some merit. First, hedge funds have exploded by number of firms (10,000) and assets under management ($1.8 trillion), thus hedge funds play a significant role in the financial markets. Second, pension plans, endowments and charities invest in hedge funds leaving working class Americans and all sector of the economy susceptible to hedge fund activity. Last and most importantly, hedge funds have become commingled with the regulated financial sectors; many financial services holding companies of federally insured banks and insurance companies are also owners of hedge fund affiliates. As the funds encroach on the regulated and insured sectors, the ripple effects become severe, as exhibited in 2008. Levin highlighted in his speech on the Senate Floor such effects: Bear Sterns two affiliated hedge funds failed, Merrill Lynch’s investments in Bear Stern’s funds contributed to ML’s failure, with ML’s demise imminent, Bank of America (a FDIC insured depository institution) acquired ML. Bank of America, which received TARP funds, is now further susceptible the volatile and secretive hedge fund world. It is murky how the proposed disclosure would have prevented our current financial meltdown. Listing affiliated financial institutions would provide retail investors with some information regarding the potential risk to public listed firms; however, assessing the magnitude of losses would likely prove difficult.

It is important to note that hedge funds are not completely without regulation. Institutional investment managers, hedge funds qualify, with over $100 million in capital invested in exchange traded securities are required to report via Form 13F a listing of security holdings within 45 days of quarter-end. Said listings are available to the public via EDGAR.

The proposed regulatory requirement do not appear to onerous for the funds, nor is the mild disclosure likely to materially impact the funds ability to quietly build positions – often a key to ‘generating alpha’. Levin concluded his speech with the following remarks “The ‘Hedge Fund Transparency Act’ will protect investors, and it will help protect our financial system.” In analyzing the proposed legislation, it is unclear how the small amount of transparency will protect investors. Hedge funds will be subject some oversight by the understaffed SEC, but it is difficult to ascertain if the proposed level of disclosure would have reduced the carnage in the markets in 2008. Levin further noted that “It is time to bring hedge funds under the federal regulatory umbrella”, which indeed this entry-level regulation will open up hedge funds to further regulation in the future. Restrictions on holdings and leverage would be particularly negative for fund managers. Hedge funds are at the top of a slippery slope of regulation which will hopefully not continue the US march toward less competitive capital markets.

Show me the money!

The Wall Street Journal is reporting [gated] that Treasury's Troubled Asset Relief Program is being hampered by a lack of staff. Given what Treasury's civil service (i.e., non-political appointee) jobs have to offer potential job seekers, this should surprise no one.

First, consider what type of skills are necessary to help run the TARP. It is not dissimilar from a $700B hedge fund, and it requires similar skills: reading financial statements, creating models, and business judgment. In short, TARP requires the sort of skills obtained on Wall Street and at MBA programs. Treasury competes directly with these alternatives for the best talent, and a Treasury civil service career does not compare well, particularly on salary.

Business Week's top ten MBA programs all claim average starting salary above $100,000, with three programs exceeding the $120K mark, and this is just salary: most jobs include bonuses. A search of Treasury job postings yields five positions that could pay eventually pay $100K, and none where the starting pay exceeds $100K. The pay also tops out lower ($149K, lower than the total compensation of a starting management consultant at Bain, BCG, or McKinsey). This problem is not limited to Treasury; closing the salary differential between judges and private sector alternatives is frequently advocated.

There are other issues as well. Civil service career progression ends when the org chart switches from civil service to political appointee positions. The positions are not breeding grounds for lucrative private sector careers in the future. And, unlike Federal judges, the positions are not regarded as highly prestigious. Finally, the government bureaucracy has a reputation as slow to move, less focused on merit, and discouraging for the entrepreneurial types found in business schools. While the civil service has its benefits - work-life balance, job stability, and, importantly, pride in serving one's country - these benefits do not have top MBAs or Wall Street alumni rushing to Washington.

How to to fix this dilemma? There are examples of government bureaucracies that work. Japan's METI (f/k/a MITI) regularly recruits the nation's top graduates due METI's important role, exclusive hiring practices, and the resulting private sector opportunities. If Treasury's TARP promised similar long-term opportunities, it would have more success in recruiting the needed staff. But more important than that? Show them the money.

Is this a good sign or a bad sign?

Citigroup, after stubbornly insisting on paying out dividends, has realized how paradoxical that practice was. As noted elsewhere on this blog, dividends are a way to return excess capital to shareholders. Yet, Citigroup keeps raising capital - implying they have too little capital. Perhaps the Citi board thought that the dividend was necessary to hold up the share price, which is critical to issuing new equity.

So what explains cutting the dividend now? Has management just now realized that issuing dividends while raising capital both destroys value (round-tripping capital just generates fees and administrative costs) and confuses the market? Or is this a sign that Citi no longer believes it can rise capital from private sources, so why bother worrying whether cutting the dividend causes share prices to fall?

McCaskill-Grassley Bill – Wanted: Managing Director for TARP I, LP

On November 19, 2008 U.S. Senators Claire McCaskill (D-MO) and Chuck Grassley (R-IA) introduced the McCaskill-Grassley Bill to provide additional oversight of the Troubled Asset Relief Program (“TARP”). The bill is designed to increase the power and better define the role of the Special Inspector General (“IG”). The TARP was originally established to purchase troubled assets (bad mortgages) from the flailing financial institutions. The TARP has shifted the programs focus to the Capital Purchase Program (“CPP”), effectively functioning as a private equity fund focused on PIPE (private investments in public equities) investments in out-of-favor industries, which in fact would be every industry in the United States.

With two main focuses, US tax payers may have to take the good with the bad. The bill will “expand the authority of the IG to cover any and all action conducted as part of the Troubled Asset Relief Program.” Currently TARP I, LP is doweling out its LP’s (tax payers) money with only a few investment considerations in mind: (1) limited executive compensation, (2) clawback provisions in place, and (3) no golden parachutes. Missing from the investment committee’s analysis are (1) Tier 1 Capital ratio, (2) asset growth rate, (3) deposit market share, and (4) return on tangible equity, too name a few. As previously mentioned, on November 1 of this year the CBO listed the first $135B in TARP related investments as having a net present value of -$17B; thankfully these investments are not carried at fair market value. Using the KBW Regional Bank Index as a proxy (which lost 25% form October 21 to November) the reported $-17B of TARP expenditures (negative investments) would stand at -$42B.

Additional oversight is necessary for the $700B TARP plan which equates to early 5% of US GDP. Here in lies the bad; the bill will also “give the IG temporary hiring power.” With a government’s P&L that looks strikingly similar to that of General Motors, the US Government is taking on G&A – a hiring binge that will inflate a bloated government. Oversight is important, but at what cost? Keynesians may find the additional government expenditures a demand side stimulus; a few Wall Street types can take their talent to the TARP. The demand side and supply side debate wages on, but both demand siders and supply siders would agree a better alternative would be to fund projects with long-term future benefit, namely infrastructure.

Post-Close work with a portfolio can help drive returns to LPs, but making good investments should be step one. Coupling some prudent oversight with more appropriate investment criterion (capital infusions in otherwise solvent banks) could provide tax payers with return on investment not simply a hope for return of investment.

Review of the CBO’s Annual Report to Congress

In September the Congressional Budget Office (CBO) published The Budget and Economic Outlook: An Update (“The Update” references the September 2008 report).  The piece is developed to provide US Congress with a basis for comparison of current legislation to the proposed changes in tax law and spending allocations.  The report is developed in accordance to section 202(e) of the Congressional Budget Act of 1974; the CBO is instructed not to make recommendations, to simply report impartial analysis.  In addition to the annual report, the CBO publishes monthly results.  While the CBO may not be able to explicitly make recommendations, implicitly the CBO recommends that congress reign in spending, increase receipts, or both with the following statement regarding the long-term outlook, “Over the long term, the budget remains on an unsustainable path.” 

The Update paints a grim picture for the United States in terms of both the budget and economic outlook; two items that cannot be viewed in isolation.  The Update predicted a FY2008 deficit of $407B, which was actually $455B per the November 2008 Monthly Budget Review, verse $161B in 2007.  The deficit widened in 2008 as expenditures rose 8.3% year-over-year with flat revenue.  The revenue was flat primarily due to the February 2008 stimulus package.  Absent the rebates and depreciation tax credits, revenue would have increased 2.5%, lagging the growth in outlays.  The deficit is expected to remain greater than $400B (~3% of GDP) through 2009.

Absent a few years in the last 1990’s and early 2000’s, the United States has been effectively running deficits since the 1970.  The CBO’s An Analysis of the President’s Budgetary Proposals for Fiscal Year 2009 saw an end to this deficit spending, forecasting a net surplus of $0.3T over the ten year period ending 2018; unfortunately, The Update in September was in sharp contrast with an estimated aggregate deficit of $2.3T for the same period.  $1.0T of which is related to revised forecasts of outlays for defense spending in Iraq and Afghanistan; an additional $850B is a result of a downward revision in economic projections.  Outlays during the upcoming decade are forecasted in excess of the historical 40 year average of 20.6% of GDP.  While outlays are anticipated to rise during the period, receipts are anticipated rise as well from 17.3% of GDP in 2008 to 20% in 2012, resulting in a reduction in the annual deficit.

The unsustainable path is exacerbated by the aging US population.  Outlays for the foreseeable future will be categorized in three forms, Mandatory, Discretionary, and Net Interest; in Camelot not only would it only rain at night, but Net Interest would be a receipt.  Mandatory Outlays are established based on eligibility rules and benefit levels which are set in law (Medicare, Medicaid, Social Security, etc).  Mandatory outlays are the largest source of increases in outlays; healthcare costs are expected to increase from 4.6% of GDP in 2008 to 6.0% in 2018, a 30% increase over the decade.  Healthcare costs are expected to continue to explode to 12% by 2050.  Less substantially, Social Security is expected to increase from 4.3% of GDP to 5.0% by the end of the forecast period.  Over the near term, the CBO anticipates spikes in outlays for deposit insurance, unemployment, food stamps, and other payments related to the current economic recession.

Discretionary outlays are set a new each year in accordance to appropriations acts.  Discretionary expenditures are divided into defense (59% of discretionary) and non-defense (41%).  As noted earlier, defense spending was revised upward by $1.0T over the forecast period as a result of a nearly $0.1T increase in the 2009 budget, which was anticipated to continue annually during the forecasted period.  Discretionary outlays are subject to sharp swings and are difficult to forecast with substantial uncertainty in the composition of Congress and Presidential Suite.  The Update projects Net interest to jump 17% over the next year, which was developed prior to the passage of the Emergency Economic Stabilization Act of 2008.  The Update projected the national debt balance at $9,568B at the end of 2008, growing to $10,247B by the end of FY2009.  After recent treasury auctions totaling roughly $1.0T in prior three months, the US debt burden has swelled to $10,618B as of November 14, 2008.  The increased debt burden with further add to the previously forecasted 6.4% annual growth in net interest outlays reported in The Update. 

With forecasted increases in outlays, receipts will need to increase to narrow the projected deficit.  The projected deficits begin to fall in 2012 with the expiration of many tax provisions set in the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA) and Jobs And Growth Tax Relief Reconciliation Act of 2003 (JGTRRA) as of December 31, 2010.  Absent Congressional action to extend the provisions regarding capital gains, dividends, and ordinary income, statutory rates will increase for the 2011 tax year.  The elimination of such provisions will increase receipts to roughly 20% of GDP in 2012 and individual tax receipts will increase from 8.2% to 10.9% by 2018.  Over the prior decade capital gains has increased as a percent of receipts substantially, absent the dramatic decline in financial markets, this increase would be expected to continue until the expiration of the temporary decrease in capital gains rate to 15%.  Depressed asset prices and an increased statutory rate will decrease the level of receipts from capital gains. 

The November 7, 2008 Monthly Budget Review provided preliminary insight on the US post-TARP.  October 2008 saw receipts decline $13B with a $63B increase in outlays, resulting in a $77B increase in the monthly deficit year-over-year.  Included in the $63B increase in outlays was $17B related to TARP.  The CBO is reporting TARP payments based on the net present value of the Government’s investment in the troubled institutions.  The Government disbursed $115B in October, which according the CBO has a net present value of $98B, thus a $17B outlay. 

With the overall macroeconomic environment worsening, unemployment at 7.5% verse a predicted 6%, rising national debt burden, and evaporating consumer confidence, the likelihood of budget surpluses in the near-term are increasingly unlikely.  The unsustainable path of budget deficits and ballooning debt burden will continue to weigh on US citizens and global citizens.  Parents are no lot saving for their children’s education; instead they are borrowing against their children’s future income.

Capital Purchase Program

This morning Secretary Hank Paulson made a statement regarding the $250B Capital Purchase Program component of the financial rescue package. Critics of the CPP and TARP question the role of government in the capital markets and believe that the US Government is privatizing profits, while socializing losses.

Although drastic, CPP and TARP are well within the bounds of Treasury’s duties. The following is an excerpt from Department of the Treasury’s mission:

The Treasury Department is the executive agency responsible for promoting economic prosperity and ensuring the financial security of the United States. The Department is responsible for a wide range of activities such as advising the President on economic and financial issues, encouraging sustainable economic growth, and fostering improved governance in financial institutions.

CPP is the direct result of the later two goals. Paulson notes in his statement, “Our purpose is to increase confidence in our banks and increase the confidence of our banks, so that they will deploy, not hoard, their capital.” The restored confidence should open up the credit markets, prudent deployment of capital will enable sound businesses, aspiring students, and honest homeowners to continue the sustainable growth the United States has exhibited since 1776.

Additionally, the Treasury is utilizing market mechanisms to institute additional regulation. Qualifying Financial Institutions (QFI) will only have access to CPP if the institutions agree to caps on executive compensation, clawback provisions, and bans on golden parachutes. The Government is not ruling with an iron fist, rather the Treasury is providing a carrot for banks and thrifts to exercise increased prudence and to incent greater alignment of interest between all stakeholders.

In the near-term, the Treasury may have socialized losses; however, Paulson highlights the CPP is an investment by the Treasury, not an expenditure of the Treasury. The CPP investments will be in the form of preferred stock (5% dividend yield) with warrants for common stock. Assuming confidence is restored and sustainable economic growth persists, the warrants should provide the Government with substantial upside. As Tier 1 Capital, CPP investments will improve the banks’ capitalization and coupled with an improved balance sheet through other TARP initiatives, bank common equity valuations should improve.

Such investments are not risk free; the Treasury cannot guarantee a return OF capital, never mind a return ON capital. In April TPG appeared to have structured their way into a sound investment of preferred equity in Washington Mutual; however, the investment has turned out to be an expenditure. In reviewing the Interim Final Rule for the TARP CPP, as noted earlier, the qualifications are focused primarily around corporate governance and are not focused on the soundness of the preferred equity investment. A return on capital should yield a return to a prosperous United States.

For more information see the CPP FAQ and Application Guidelines.