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Sizing up TARP: In Lilac City, a Sterling example

SATURDAY, SEPT. 15, 2012

Bailout has become a dirty word. Like most dirty words, it has migrated a long way from any actual meaning and become a verbal cudgel.

It might be useful to consider, more specifically, what we spent and what we received under the Troubled Asset Relief Program.

I mean we, here in Spokane, America.

Specifically: Should we have spent $183 million to save 600 Spokane jobs – and 2,500 regional jobs – and rescue Spokane’s Sterling Financial? Was it worth it? Or should that bank have gone under?

Hard-core free marketeers, or hard-core Occupiers, may think so. But there’s been such a persistent lack of specific information about the bailouts that it’s almost spooky, thanks to a combination of forces: the enormity of the programs, the opacity of government and business operations, and the lack of journalistic interest or ability to dig up the bones. That has allowed us to view the subject as something so general, so large and vague and distant, that it’s become a cartoon villain.

Sterling is our bailout standout here in Washington. It received more money than any other of the 19 financial institutions statewide that got TARP money. It also booked the biggest loss: Of the $303 million that went to Sterling, the government recovered about $120 million.

The Treasury closed its books on Sterling about a month ago, selling more than 5 million shares of the bank at $20 each.

Meanwhile, the company is recording profitable quarters, rising share prices and earnings, and garnering positive forecasts from market observers.

What’s the cost-benefit there? For Ezra Eckhardt, president and CEO of Sterling, it’s unquestionable: TARP helped Sterling recover, reorganize and stay in business. That’s kept lots of people employed, kept the bank lending to businesses and families, and put the company on a much stronger foundation.

Sterling has had positive growth in earnings for several quarters in a row, and its second-quarter earnings of $320.8 million – boosted by a large one-time windfall – produced “without question the most favorable quarter in the bank’s history,” Eckhardt said.

Nationwide, he said, TARP stabilized banking and “created a bridge” to solvency for the financial industry – and everyone who depends on it, which is nearly everyone – as well as laying the groundwork for economic recovery.

And if the Treasury hadn’t stepped in? It would have been the end for Sterling, and it probably would have been even more costly, Eckhardt said. “If Sterling had failed and been turned over to the FDIC, the FDIC would have had to provide some loss guarantee to another institution (to take over),” he said.

If that had happened, the cost to the government could have been between $500 million and $1 billion, he said.

That’s not an idle exaggeration. Large bank failures, like IndyMac Bank in California, would end up costing the FDIC several billion dollars. When Bank of Whitman – which is much, much smaller than Sterling – failed last year, federal regulators estimated it would cost the FDIC about $138 million.

The key difference, of course, is that taxpayers don’t fund the FDIC – banks purchasing insurance on their assets do.

TARP saved Sterling, and taxpayers took a hit to do it.

This is not the story that U.S. Rep. Cathy McMorris Rodgers has told; she’s portrayed TARP as something local banks were forced into, something that made their lives worse and burdened them with excess regulations. Like a lot of us, she took refuge in blaming everything on the big banks – and Lord knows you could not find a more deserving target – and acted as if TARP helped only them.

Sterling’s bailout represented about 2 percent of all TARP money for banks, according to ProPublica. It amounted to about 0.1 percent of all bailout spending.

The bailouts were so vast, and the recipients so numerous, and the circumstances surrounding repayment – or the lack thereof – are so various, it makes your head spin. The online investigative journalism organization ProPublica, in its attempt to quantify “every dollar and every recipient” of the $700 billion TARP bill – which was approved by Congress in October 2008 – and the bailout of Fannie Mae and Freddie Mac, has compiled a massive, impressive and still developing database called the Bailout Tracker. You can find it at projects.propublica.org/bailout/.

As of this week, $604 billion has been spent, invested or loaned under the bailouts. About $427 billion has come back to the Treasury as interest, dividends or other income.

Forty-one percent of the total went to banks and financial institutions. Thirty-one percent went to government-sponsored mortgage aggregators Fannie Mae and Freddie Mac. Thirteen percent went to auto companies, and 11 percent to multinational insurance giant AIG.

Billions and billions of dollars still may come back to the Treasury or may not. Others are already a loss, ProPublica says. CIT Group is the largest of those at $2.3 billion. Chrysler is next at $1.3 billion.

Sterling Financial is the fifth-largest loss in ProPublica’s accounting.

But the story of Sterling and Spokane and TARP is not only a loss. Whether you think it was worth it or not, it was more than that.

Shawn Vestal can be reached at (509) 459-5431 or shawnv@spokesman.com.

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