Tuesday, November 18, 2008

TARP Turns Into CRAP

The list of capitalist success stories who can't survive without a government handout just keeps growing, and the methods they use to qualify grow more desperate:

American Express Co., Hartford Financial Services Group Inc., Popular Inc. and Synovus Financial Corp. are among at least 80 companies applying for about $61 billion from the U.S. Troubled Asset Relief Program.

Lincoln National Corp. and Aegon NV, owner of Transamerica Corp., may buy savings and loan companies in Indiana and Maryland whose methods were found to be "unsafe and unsound'' by the Office of Thrift Supervision. Hartford is acquiring a Florida lender that was told by the OTS in May to curb lending. Genworth Financial Inc.'s target got a "cease-and-desist'' order tied to potentially fraudulent loans.

Dividing the remaining TARP pool by 80 applicants leaves about $763mm for each firm, assuming it's divided equally among them. It won't be, of course, so a lot of firms are going to walk away disappointed.

Even the usual cheerleaders in the media are growing skeptical of TARP's effectiveness:

Hatched hastily about two months ago, the TARP (Troubled Asset Relief Program) was conceived to stabilize financial markets and restore investor confidence. But now it is looking so amorphous and vulnerable to political trade winds, that it is has become almost a constant of uncertainty.

Treasury's people have said that TARP was intended partly to support healthy firms' forced acquisitions of ailing firms. They never mentioned whether TARP would be used to help insurance firms, formerly among the most scrupulous businesses, acquire criminal enterprises. The future history of TARP will include its transformation into CRAP: Criminal Remuneration Assistance Program.

Here's my potential play: Firms denied TARP money might be useful bearish bets if the market judges them to be incapable of survival. We'll see after the New Year if Uncle Sam's policy of picking winners and losers in finance can generate some alpha.