The Government Relief Index consists of companies of multiple industries that have received a direct investment from the U.S. government greater than $1 billion. The new benchmark is calculated in real-time across combined exchanges and is traded in dollars. The index was launched on January 5, 2009 and opened with a value of 1000. It closed up 14% on Wednesday at 752.28, but is it is currently down 223.82 points or 22.93% from its initial market debut. Below is a chart of the companies weighted in the NasdaqOMX Government Relief Index with an industry breakdown as follows: Banking 62.67%, Other Financial 27.53%, Industrial 5.06%, and Insurance 4.75%.
Amongst the beneficiaries weighted in the Government Relief Index, the troubled insurer American International Group has greatly benefited from governmental aid as AIG has received $40 billion from the government in exchange for a 2% stake in its preferred shares, on top of $85 billion in rescue-bridge loans that prevented the company from bankruptcy back in September, and $37.8 billion provided in early October as cash collateral. AIG's stock however, has been the worst performer in the Index for the past five months, as it has shed 93% of its value as of January 28th's close.
The first $350 billion in TARP funds has already been allocated as follows:
- $168 billion in various amounts to 116 banks
$82 billion committed to capatilize more banks
$40 billion in exchange for 2% stake in preferred shares of AIG
$20 billion to back any losses that the Federal Reserve Bank of New York might incur in a new program to lend money to owners of securities backed by credit card debt, student loans, auto loans, and small business loans
$20 billion investment in Citigroup on top of $25 billion the bank had already received
$17.4 billion loan to GM and Chrysler LLC to get them through the next few months.
With $350 billion left in TARP funds, President Obama and his cabinet have laid out new priorities for the remaining balance. In a letter addressed by Lawrence Summers, the head of the White House's National Exonomic Council for President Barack Obama, to House Speaker Nanci Pelosi, Obama and his team pledged to use greater accountability as to how banks will use bail-out funds since a great deal of controversy surrounds the first $350 billion tranche. In Summers' letter to Pelosi, Obama aims to use the remaining funds as follows:
- Use various tools to get the credit flowing to consumers and business
- Reform the oversight of the TARP program and other responses to financial crisis
- Use aggressive policies to reduce foreclosures
- Toughen conditions for recipients of bail-out money
- Try to attract private capital and speed the end of bail-out plans
Nevertheless, the release of the second $350 billion TARP funds has been debatable, as the Senate and Congress have entered a tug-of war. Earlier this month, the Senate voted 52-42 to make the remaining funds available to Obama's Administration, but the House declined to follow the Senate's lead. Will additional gloom and doom spark new companies to sell their bad assets to the government? One thing is certain. Benchmark Indices such as the NasdaqOMX Government Relief Index (QGRI) will be helpful in tracking the performance of the companies desiring to tap government-sponsored capitalization programs such as TARP.
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