How Elizabeth Warren saved taxpayers $1 billion
Elizabeth Warren's work keeping tabs on the bank bailout is a great argument for good government
Topics:
Elizabeth Warren,
federal government\,
Financial Crisis,
government spending,
TARP, Politics News
While
Mitt Romney and Barack Obama battle nationally for the right to occupy
the White House for the next four years, perhaps the second most
contentious significant race in the entire country is occurring in
Massachusetts. That is where the Democratic Party’s candidate for
Senate, self-described advocate for the middle class Elizabeth Warren,
faces off against Republican Scott Brown. Polls show the race is close,
and the bitterness of the rhetoric matches the polling.
One of Scott Brown’s most consistent arguments is that Elizabeth Warren represents Obama’s liberal “tax and spend” policies leading to big government. But a new paper by Stanford political scientist Lucas Puente published in PS. Political Science and Politics shows that Elizabeth Warren’s work on the Congressional Oversight Panel was highly advantageous to the taxpayer, saving over a billion dollars money by taking a skeptical approach towards the Treasury Department’s bailout plans.
The issue has to do with an obscure part of the Troubled Asset Relief Program, or TARP, known as warrants. This was a piece of the bailout that was designed to allow the government to profit from its investment in banks.
In 2008, at the height of the financial crisis, Treasury Secretary Hank Paulson decided to put money into the banking system by investing in preferred shares of the banks. These investments entitled Treasury to dividend payments of 5 percent a year for the first five years, and 9 percent thereafter. In addition, as part of the deal, the government received warrants, or the right to purchase common stock at a preset price at any time over the next ten years, at a value of roughly 15 percent of the government investment. The strike price of these warrants was equivalent to, as Puente wrote, “the 20 day trailing average of first’s common stock trading price at the time of the deal.” Two hundred and seventy-three firms eventually exchanged warrants. Treasury has sold many of them, including those from the largest banks.
One of Scott Brown’s most consistent arguments is that Elizabeth Warren represents Obama’s liberal “tax and spend” policies leading to big government. But a new paper by Stanford political scientist Lucas Puente published in PS. Political Science and Politics shows that Elizabeth Warren’s work on the Congressional Oversight Panel was highly advantageous to the taxpayer, saving over a billion dollars money by taking a skeptical approach towards the Treasury Department’s bailout plans.
The issue has to do with an obscure part of the Troubled Asset Relief Program, or TARP, known as warrants. This was a piece of the bailout that was designed to allow the government to profit from its investment in banks.
In 2008, at the height of the financial crisis, Treasury Secretary Hank Paulson decided to put money into the banking system by investing in preferred shares of the banks. These investments entitled Treasury to dividend payments of 5 percent a year for the first five years, and 9 percent thereafter. In addition, as part of the deal, the government received warrants, or the right to purchase common stock at a preset price at any time over the next ten years, at a value of roughly 15 percent of the government investment. The strike price of these warrants was equivalent to, as Puente wrote, “the 20 day trailing average of first’s common stock trading price at the time of the deal.” Two hundred and seventy-three firms eventually exchanged warrants. Treasury has sold many of them, including those from the largest banks.
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