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TARP Makes 8.2% Profit

October 21st, 2010 at 3:23 am | 7 Comments |

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Bloomberg reports:

The U.S. government’s bailout of financial firms through the Troubled Asset Relief Program provided taxpayers with higher returns than yields paid on 30- year Treasury bonds — enough money to fund the Securities and Exchange Commission for the next two decades.

The government has earned $25.2 billion on its investment of $309 billion in banks and insurance companies, sale an 8.2 percent return over two years, troche according to data compiled by Bloomberg. That beat U.S. Treasuries, high-yield savings accounts, money- market funds and certificates of deposit. Investing in the stock market or gold would have paid off better.

When the government first announced its intention to plow funds into the nation’s banks in October 2008 to resuscitate the financial system, many expected it to lose hundreds of billions of dollars. Two years later TARP’s bank and insurance investments have made money, and about two-thirds of the funds have been paid back. Yet Democrats are struggling to turn those gains into political capital, and the indirect costs of propping up banks could have longer-term consequences for the economy.

“From the perspective of the taxpayers getting their money back, TARP has been a great success,” said Todd Petzel, chief investment officer at New York-based Offit Capital Advisors LLC, which has more than $5 billion of assets under management. “But there are other costs as the government made it possible for the banks to pay back TARP. Those costs can turn out to be larger, and their legacy could last longer.”

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7 Comments so far ↓

  • armstp

    Surprise, surprise…. maybe the right decisions were made after all. Stabilize the financial system preventing a great depression and make a profit at the same time. Sounds good to me.

    Too bad guys like Bob Bennett in Utah had to lose his seat by ignortant Tea Partiers over it.

  • Non-Contributor

    “But there are other costs as the government made it possible for the banks to pay back TARP. Those costs can turn out to be larger, and their legacy could last longer.”

    Oh really? So the government should have let the banks just default on a global scale? Where would the economy be then and how long would that legacy lasted?

  • jg bennet

    Like I said yesterday it was W’s most brilliant move and all those buying into the anti bailout bandwagon look like the no gov no regulation fools who caused the crisis in the first place.

    It is interesting that the most non Conservative/Republican things he did worked better than the Republican things he did like cut taxes without paying for them.

    case in point….

    Four years into full operation, President George W. Bush’s Medicare prescription drug program is coming in well below its projected cost, giving hope to backers of the new health insurance law that it, too, could beat budget expectations.

    The numbers are stark and conclusive: In 2009, the government spent $60.8 billion on the drug benefit, or far less than the annual $111.2 billion cost projected just five years ago, after the program was enacted.

    “I’m perfectly willing to say I was wrong,” said Robert Moffit, a senior fellow at the conservative Heritage Foundation who fought the 2003 bill as an inevitable boondoggle. “I projected these costs would go through the roof on prescription drugs. I also did not believe private plans would come and offer their wares. Frankly, I’m perfectly willing to say I was wrong.”

    http://www.washingtontimes.com/news/2010/aug/16/bush-drug-plan-beats-cost-mark/

  • Watusie

    One wonders what the “legacy cost” of letting the entire financial system collapse would have been.

    Will Sarah Palin and John Thune – who were for TARP before they were against it – go back to being for it now?

  • midcon

    So who gets the credit? The GOP will have to claim it because W initiated it. The Dems will say it’s a result of O’s management of it. It will be interesting to see the backpedaling and spinning about the results. I think I will tune in to Beck to see what will be saying. Of course he will probably say it was a Nazi conspiracy or something.

  • armstp

    midcon,

    As much as both the Dems and Repub try and distance themselves from the TARP they are both responsible, although I would say the Dems are much more responsible.

    Remember when the financial crisis first hit and McCain called off his campaign in August 2008. He then rushed back to that Washington meeting, but essentially had nothing to say. It was the Obama people who came prepared to deal and negotiated with Paulson on getting something done. At the time it was Obama warning Paulson that the Dems had the votes, but that it was up to Paulson to get his side to vote for it. In Paulson’s book he has some good things to say about Obama and the Democrats about this time. He basicially says they came prepared to solve problems and McCain and the Republicans did not.

    The Dems are currently taking the biggest hits on the TARP in terms of this election, so they should get much of the credit for TARP’s success.

    In the end 241 House Democrats voted for the bill and only 19 Republicans voted for it, despite Boehner’s crying on the senate floor. It was the Democrats who saved the economy. Period.

    http://www.govtrack.us/congress/vote.xpd?vote=h2009-26

    It is too bad this is the last time we had a somewhat of a bipartisan effort, although given only 19 Repubs it was not that bipartisan.

    Now of course the “Liberal” media is not going to play-up the success of TARP. They would not want to do that, it would make the Dems and Obama look good.

  • CO Independent

    As I’ve said before, TARP is turning a profit only because the FED and the two FMs have taken a few $trillion of the flawed MBSs off the banks’ books, transferring the risk and losses associated therewith to the taxpayer. Losses to date on only the two FMs are $148B and the FHFA forecast is for another $363B through 2013.
    http://www.zerohedge.com/article/revised-fhfa-forecast-taxpayers-fund-363-billion-gse-losses-2013

    So that’s $25B in the front door and $511B out the back door, for a net loss of $486B. And we still know nothing about the losses buried in the Fed’s MBS portfolio.

    This is a shell game, people. Follow the money.