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Posts Tagged ‘TARP’

Here is an Bloomberg article we found noteworthy.

“Taxpayer losses from supporting Fannie Mae and Freddie Mac will top $400 billion, according to Peter Wallison, a former general counsel at the Treasury who is now a fellow at the American Enterprise Institute.

“The situation is they are losing gobs of money, up to $400 billion in mortgages,” Wallison said in a Bloomberg Television interview. The Treasury Department recognized last week that losses will be more than $400 billion when it raised its limit on federal support for the two government-sponsored enterprises, he said.

The U.S. seized the two mortgage financiers in 2008 as the government struggled to prevent a meltdown of the financial system. The debt of Fannie Mae, Freddie Mac and the Federal Home Loan Banks grew an average of $184 billion annually from 1998 to 2008, helping fuel a bubble that drove home prices up by 107 percent between 2000 and mid-2006, according to the S&P/Case- Shiller home-price index.

The Treasury said on Dec. 24 it would provide an unlimited amount of assistance to the companies as needed for the next three years to alleviate market concern that the government lifeline for Fannie Mae and Freddie Mac, the largest source of money for U.S. home loans, could lapse or be exhausted.

Lax regulation of Fannie Mae and Freddie Mac led to the mortgage companies taking on too many risky loans, Wallison said.

“It turns out it was impossible to regulate them,” he said. “They were too powerful.” He said no one knows how much will be needed to keep the companies solvent.

From 1990 to 1999, Wallison served on the board of directors of MGIC Investment Corp., the largest U.S. mortgage insurer, including a stint on the audit committee, according to Bloomberg data and company filings.”

Read the full article here.

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Here is an excellent blog entry from Mind The Bridge.

“The American Recovery and Reinvestment Act, passed last February 2009, pours over $65 billion into renewable energy, energy efficiency and greentech financing of which 6.5 billion for R&D. It is a real “Green New Deal”: The most significant effort in public spending in science and technology after the launch of the Apollo Program. And «it only costs the equivalent of a couple of months in Irak» as a blogger commented on the New York Times website. A big part of these dollars is already profiting Silicon Valley start-ups and research centers, which are leading the way through future technological development.”

It continues…

“The most important incentives deployed by the Stimulus Package are the following:

  • A large sum for energy efficiency, including $5 billion for low-income weatherization programs; over $6 billion in grants for state and local governments; and several billion to modernize federal buildings, with a particular emphasis on energy efficiency.
  • $11 billion for “smart grid” investments.
  • $3.4 billion for carbon capture and sequestration demonstration projects (also known as “clean coal”).
  • $2 billion for research into batteries for electric cars.
  • $500 million to help workers train for “green jobs.”
  • A three-year extension of the “production tax credit” for wind energy (as well as a tax credit extension for biomass, geothermal, landfill gas and some hydropower projects).
  • The option, available to many developers, of turning their tax credits into direct cash, with the government underwriting 30 percent of a project’s cost.

For more details, I found the DSIRE database very useful to navigate the complex space of federal and state incentives for renewables and efficiency.”

In Silicon Valley, the following companies are eyeing these funds.

“Renewable Power Generation : Thin Film Solar photovoltaic
Solyndra is the first company to receive an offer for a U.S. Department of Energy (DOE) loan guarantee within the Stimulus Package. Solyndra, a Fremont, California-based manufacturer of innovative cylindrical photovoltaic systems using thin film technology, will use the proceeds of a $535 million loan from the U.S. Treasury’s Federal Financing Bank to expand its solar panel manufacturing capacity in California. Also in the thin-film sector, Heliovolt is looking into the Stimulus Package for the development of its technology and production capacity. It is a CIGS thin-film PV panel manufacturer that uses a fraction of semiconductor material used in traditional silicon cells, significantly slicing costs while at the same time achieving performances comparable to traditional silicon cells.

Transportation: Electric Cars and Biofuels
Tesla Motors, Inc. is awaiting word on a $350 million loan application to the Department of Energy that would allow the electric carmaker to build the Model S sedan, which is expected to cost $57,400. Tesla is a Silicon Valley automobile startup company focusing on the production of high performance, consumer-oriented battery electric vehicles. In the biodiesel space, Aurora Biofuels uses proprietary technology developed at the University of California at Berkeley, to produce biodiesel feedstock from microalgae. Based in Alameda, California, Aurora’s technology achieves yields that are 100 times higher and at significant lower costs than traditional bioethanol production methods.

Energy Efficiency:
Serious Materials, a leading sustainable building materials company based in Sunnyvale, CA, announced that it fully supports the American Recovery and Reinvestment Act energy efficiency provisions. “We are already opening plants to meet the Recovery Act demand and hiring what may be hundreds of workers this year.” The company’s products such as SeriousWindows and SeriousGlass can reduce heating and cooling energy costs by up to 50%. Under the Recovery Act, homeowners can receive federal tax credits for “qualified energy-efficient improvements,” which include windows, doors and skylights. The new tax credits are for 30% of the cost of eligible products up to a limit of $1,500.

Efficiency of Infrastructures: Smart Grid Management Systems
Lumenergi, Inc., a Newark, CA based start-up is emerging rapidly in a space populated by large corporations. Lumenergi manufactures advanced and price-competitive dimming electronic ballast for fluorescent lighting that, combined with a proprietary lighting control system, is able to achieve energy savings in the order of 70%. In addition, Lumenergi’s system is Demend Response ready, allowing utilities to save energy at peak loads. This provides a huge opportunity as lighting accounts for 23 percent of all electricity consumption in the U.S. and 50 percent of electricity used in high-rise buildings. Coupled with rebates and grants that are increasingly being offered by utilities or state energy offices, Lumenergi estimates that a customer could get a return on their investment in only two years.

With billions of dollars from the Recovery Act flowing into smart grid investments, pushing utilities towards efficiency, and funding energy efficiency retrofits of commercial and governmental building, Lumenergi and other technology start-ups in Silicon Valley are getting organized to make the most out of federal and state funding.”

Click here to read the full article.

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Here is a worrying story in regards to investments in the cleantech sector. As the bailout programs makes their way around unfit companies, cleantech investments have taken a dive.

One may think that boards and investors are looking to cash in on this crisis before orivate equity is put up. Here is  some quotes from a IBT article posted this week.

“Cleantech companies received less than half venture capital (VC) investments in the first quarter of 2009 than they did a year ago, but the industry looks forward for government funds for recovery, according to industry analysts.

During the period through March, venture capitalists invested in 24 clean energy deals raising $227 million, a decline of 63 percent in capital and 48 percent in terms of deals compared to the same period of 2008, according to an Ernst & Young LLP analysis.

“Despite the intense challenges of raising capital during the past four months, government initiatives and corporate commitments are points of light for cleantech companies,” said Joseph A. Muscat, Americas Director of Cleantech, Ernst & Young LLP.”

A quite possible reason for this might be the government plan of putting the TARP funds to use in this sector as well.

“Government funding from the U.S. stimulus package is expected to pour more than $100 billion dollars in direct spending, loan guarantees and incentives into cleantech in energy, water and environment, Ernst & Young noted.”

Read the full article here.

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Putting cash into unhealthy business has long been understood as a bad deal. With the Bailout programs and the TARP initiative, some might have thought that the problem was solved – think again. Poor business remain poor business.

Here are some good quotes taken from NY Times.

“The results of the bank stress tests have been trickling out for days, from Washington and from Wall Street, and the leaks seem to confirm what many bankers feel in their bones: despite all those bailouts, some of the nation’s largest banks still need more money.

But that does not necessarily mean the banks will get that money from the government. The findings, to be released Thursday by the Obama administration, suggest that the rescue money that Congress has already approved will be enough to fill the gaps. If so, the big bailouts for the banks may be over.But hopes that the tests will be a turning point in this financial crisis electrified Wall Street on Wednesday and some overseas markets the next day. Financial shares soared, lifting the broader American stock market to its highest level in four months. The Dow Jones industrial average rose 101.63, or 1.2 percent, to close at 8,512.28 Wednesday, while Japan’s Nikkei index rose more than 4 percent by midday Thursday.”

Good news indeed, but…

“After news this week that Bank of America and Citigroup would be required to bolster their finances again, word came Wednesday that regulators had determined that Wells Fargo and GMAC, the deeply troubled financial arm of General Motors, would need to do so as well. But regulators decided that American Express, Capital One, Bank of New York Mellon, Goldman Sachs, JPMorgan Chase and MetLife would not need to take action. The official word is due at 5 p.m. Thursday.

The results so far seem to suggest that the 19 institutions that underwent these exams will need less than $100 billion in additional equity to cope with a deep recession, far less than some investors had feared. The question now is, where will banks get that capital?”

Read the full article here.

Other helpful sources on this issue can be found here: Huffington Post, Barrons Blogs, Wall Street Journal, Seeking Alpha, 24/7 WallStreet

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