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Economy
TARP Bailouts to be cheaper than expected
2011-02-28
I'll take good news this week wherever I find it. If TARP actually works to stabilize the financial system without costing us an arm and a leg, that's good news.
Washington — Almost three years after a series of government bailouts began, what many feared would be a deep black hole for taxpayer money isn't looking nearly so dark. The brighter picture is highlighted by the outlook for the bailouts' centerpiece — the $700-billion Troubled Asset Relief Program.

"It's turning out to cost one heck of a lot less than what we all thought at the beginning," said Ted Kaufman, a former U.S. senator from Delaware who heads the congressionally appointed panel overseeing TARP.

In mid-2009, the program was projected to lose as much as $341 billion. That's been reduced to $25 billion — partly because of the controversial decision to pump much of the TARP money into banks instead of launching a large-scale purchase of securities backed by toxic subprime mortgages.

There is now broad agreement that the bailouts worked, stabilizing the financial system and preventing an even deeper crisis.

Still, many people are worried about the long-term effects of the government actions. They said that in demonstrating a belief that some companies were too big to fail, the government set a dangerous precedent, opening the door to future crises.

Those critics also said that hundreds of billions of dollars in bailout money from TARP, the Treasury and the Federal Reserve will not come back, mainly because of the rising tab for seized housing finance giants Fannie Mae and Freddie Mac, which combined have consumed $150 billion in taxpayer money so far.
That's the issue. We forced the banks, brokerages and insurance companies to clean up their balances sheets. But we haven't done the same to Fannie and Freddie, and as a result we're losing everything we put in. We need to put a stake into both of these without further killing the housing market.
"We're not going to recoup those losses," said Rep. Patrick McHenry (R-N.C.), chairman of the House Oversight and Government Reform subcommittee monitoring the bailouts. "It's extraordinary, just absolutely extraordinary."

Fannie and Freddie, which the Obama administration recently proposed to shut down, are the main reason most recent estimates of losses for all the various bailout efforts range from $238 billion to $380 billion. But Treasury officials think those estimates might be too high. They said the total cost of all the financial interventions is likely to be less than $140 billion, or 1% of the United State's $14-trillion annual economic output.

That's less expensive than the federal losses from the savings and loan crisis in the late 1980s and early 1990s, which cost an estimated 2.4% of the nation's annual economic output at the time, according to a study by the International Monetary Fund.

In the recent recession, the federal government intervened with "overwhelming force and speed," said Timothy Massad, TARP's acting manager.

"We stopped the panic," he said. "We were then able to recapitalize the system very quickly with private capital Â… get the credit markets working again, and that laid the foundation for an economic recovery."
Which we haven't seen yet thanks to Obama's failed fiscal policies. Imagine if we had W for a third term -- whatever else one might want to say, the economy would indeed be going forward.
The bleak prospects for recouping taxpayer funds began to improve even though jobs evaporated and unemployment rates soared.

Banks have paid back close to all of the $245 billion they received, and the Treasury Department estimates that interest and dividends on those cash infusions ultimately will give taxpayers a $20-billion profit.

Last year's highly successful stock offering by General Motors Co. means losses from its rescue, along with losses from rescuing fellow automaker Chrysler and the two companies' financing arms, are projected to be $19 billion — much less than what was anticipated when the government pumped about $80 billion into the auto industry.
That's a big if, since the stock price has to rise considerably for us to recoup the loss in GM, and Chrysler has yet to pay back anything.
And a rise in the stock price of worldwide insurer American International Group Inc. as it sells many of its assets has reduced the estimated taxpayer cost to $14 billion on financial aid totaling about $125 billion. The New York company has vowed to pay it all back.
Much more accounting and specifics at the link. Bottom line: TARP isn't killing us, Obama is.
Posted by:Steve White

#3  in demonstrating a belief that some companies were too big to fail, the government set a dangerous precedent, opening the door to future crises.

This should be prevented by Dodd/Frank, at least in theory. D/F was passed with the understanding that TARP should not happen again.

Unfortunately, D/F is as poorly written as ObamaCare... so there is really no telling what will happen.
Posted by: Free Radical   2011-02-28 14:25  

#2  TARP is killing you. You're just not seeing it because the assets are artificially lowered in yield by state mandated inflation.
Posted by: Bright Pebbles   2011-02-28 11:51  

#1  I'll take good news this week wherever I find it. If TARP actually works to stabilize the financial system without costing us an arm and a leg, that's good news.

Well, it's not costing us $700B+, anyway. In order to make it impossible to distinguish who should have died and who didn't, the government forced all big banks to take the money "offered". A lot of that was destined to come back from those that did not need it. In my opinion they knew darned well that this money would come back for sure. It's the shaky stuff that I wonder about. Hopefully they will stabilize and be able pay it back over time.

And after all that, Obean will be able to say "See, we only lost $200B" or whatever and claim victory.

Of course, now Obean and crew are treating it as a slush fund.
Posted by: gorb   2011-02-28 11:22  

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