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The Status of the US TARP and Bailout Funds


The financial bailout continues, including TARP and conservatorship of Fannie Mae and Freddie Mac.


Editor's Note: This article was written by Richard Suttmeier, chief market strategist at, which is a fundamentally-based quant research firm in Princeton, New Jersey, that covers more than 5,000 stocks every day.

This table courtesy of summarizes the total bailouts in the United States: Even though the "too big to fail" banks have repaid TARP, there's still $244.9 billion outstanding at banks and other financial institutions. Fannie (FNM) and Freddie (FRE) at $144.9 billion and growing are clearly becoming the biggest hits to taxpayer wallets. Look at the dismal outlays for Main Street as foreclosure relief is a paltry $90 million. Not shown is the TARP-specific outstanding balance which totals $184.1, disbursed mostly to community and regional banks.

Statistics from Fannie Mae show continued mortgage deterioration, which should lead to another dip in housing prices keeping the pressures on community and regional banks.

  • Since May 5, Fannie and Freddie cost taxpayers another $19 billion.

  • According to Fannie Mae, home prices in the United States are down 18.4% since the peak.

  • Fannie Mae Seriously Delinquent Single-Family Mortgage Delinquencies rose to 5.47% at the end of the first quarter of 2010 versus 5.38 at the end of 2009 and 3.15% a year ago, which is a sign that "The Great Credit Crunch" is deepening.

  • Fannie Mae Real Estate Owned totaled 109,989 properties at the end of the first quarter of 2010 versus 62,371 a year ago. Acquisition growth has been accelerating from 49,121 in 2007, 94,652 in 2008, 145,617 in 2009, and 61,929 in the first quarter of 2010, which is an annual rate of 247,716.

  • Alt-A mortgages on the books of Fannie Mae total $238.3 billion.

The US Banking System Faces Continued Need to Deleverage

Since the end of 2001, GDP in the United States is up 38.6%, while total assets in the banking system are up 66.6%. This over-leverage exits even as deleveraging totaled 5.3% in 2009.

  • Commercial Real Estate Loans (nonfarm/nonresidential) are up 91.6% since the end of 2001 to $1.1 trillion. This category will be facing writedowns likely starting in the first quarter of 2010.

  • Construction & Development Loans are still up 96% since the end of 2001 despite deleveraging of 6.2% in 2008 and 23.6% in 2009.

  • Home Equity Loans are up 258.9% since the end of 2001 despite a decline of 18.3% in 2009. Homes were used as piggy banks to the tune of sequential increases of 39.1% in 2002, 35.0% in 2003, and $41.8% in 2004. This is a major reason for 23.3% of homeowners being underwater, which is another worsening housing statistic.

  • Fannie Mae is not alone in the growth in REO. I don't have Freddie Mac statistics yet, but among FDIC-insured financial institutions, REO is up 795.8% since the end of 2001 to a record $41.4 billion worth of properties.

  • Noncurrent Loans are up 526.4% since the end of 2001.

  • Notional Amount of Derivative Contracts are up 370% since the end of 2001, and we have many time bombs ticking in this category as the "too big to fail" banks lobby for loose financial regulations.
Risk Aversion Gained Some MOJO on Tuesday

US Treasury yields are back down. Gold is at a new high for the move. Oil is back down with the euro. Because of Monday's 400 point Dow gain stocks became more overvalued.

The 3-Year US Treasury Auction -- This was a strong auction for this $38 billion issue as the level was 1.414 stronger than where the WI was trading at 1:00 p.m. The bid to cover was a strong 3.27 times the auction size and the Indirect Bids were 51% well above the 30% to 40% neutral zone. I give this auction an "A" given that the recent trading range for the 3-Year is 1.463 on Monday to 1.025 last Thursday.

Today's focus is the $24 billion in 10-Year Notes -- My semiannual pivot is 3.675 with my quarterly pivot at 3.467 and the May 6 low yield at 3.266.

Comex Gold held my semiannual pivot at $1186.5, which is a key to the scenario calling gold "the currency of last resort." My weekly pivot is $1206.7 with monthly resistances at $1217.3 and $1270.1. The euro rebound faded and early big gains couldn't alleviate an oversold condition.

Nymex Crude Oil had a small bounce as my annual pivot at $77.05 provided a magnet. The lack of a bigger rally in crude oil questions the global growth story.

The Major Equity Averages had one of their stronger rebounds in history, but the Dow, S&P 500 and the NASDAQ stayed shy of their 50-day simple moving averages at 10,853, 1171.50 and 2412 respectively. In Dow terms there are 1423 points between the Feb 5 low at 9,835 and the April 26 high at 11,258 in about 10 weeks. We fell from the high back close to that low in just eight days.

The Common Sense Cause of the "Flash Crash" of Last Thursday

My take on Thursday's massacre: The stock market had been suffering from a case of complacency, ignoring overvalued and overbought conditions for stocks that led to short-covering around the April 26 highs. The bulls were ignoring the debt crisis in Greece, calling it contained. The bulls were fully invested and didn't have bids in the system and short-covering bids were limited.

The bottom line is, when the short base is reduced and the bulls are fully invested, there are no bids below the market. Therefore the only way is down hard when the crowd wants to exit.

What we need is circuit breakers in stocks traded on the computer platforms. I'm an engineer by education with a Master of Science in Operations Research Systems Analysis. I designed simulation programs in the late 1960s into 1972. I know how computerization can be biased by the programmer's design. I've always opined that Black Box Trading should be banned.

The fall-out from Thursday's meltdown will only take more average investors out of the market, calling it a Wall Street-rigged game.

High Frequency Trading needs a human touch or automated safeguards and the transparency to know that below a certain bid or above a certain offer there's a price gap of x%. Knowing this information, these gaps are likely to be filled by willing flash traders. If not, there has to be a y% threshold where the system stops trading on a stock until liquidity returns.

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