Checking-in With TARP

On June 10, Treasury released its May TARP (Troubled Asset Relief Program) report, providing an update for the bailout program. The big, "milestone" news from the report is that TARP repayments have now exceeded the remaining balance. According to the report, through May, TARP recipients paid back $194 billion, which is more than half of the total funds TARP has paid out ($384 billion, which includes everything, from the bank warrants to the AIG payments to the auto bailouts). In other words, TARP recipients have paid back $194 billion, meaning that the returned funds now outweigh the remaining balance.

While this news is interesting, I don’t really think that’s the most important part of the report. A more important nugget of news from the report is that from the TARP investments paid back thus far, Treasury has earned about $23 billion. So while recipients have paid back $194 billion, that was from only $170 billion worth of investments. That’s not a bad rate of return.

This doesn’t mean TARP as a whole is going to be profitable. Some programs, such as the $50 billion home mortgage modification program, were never meant to earn back their costs. In fact, that one program will likely erase all the profits from the other programs (assuming the home mortgage modification program ever gets off the ground, which it has yet to do). Taken together, I think it’s clear the TARP program will be a losing proposition; Treasury is currently estimating the program will cost about $105 billion in all.

But the news of the profit is good, because every dollar earned in profit covers a dollar lost through other programs. That’s why it’s important for Treasury to fight for every last dollar, whenever possible. There was some speculation (from OMB Watch, among others) that Treasury might find it hard to meet the dual goals of economic stability and taxpayer profit when selling back its TARP holdings. While I still think the potential profits could be higher (as noted in a recent Watcher, Citi’s stock is down to about $4 a share, from its peak of $50 pre-meltdown), this latest news of TARP profits shows that Treasury is pretty serious when it comes to securing a profit for the taxpayers.

At the same time, I’m okay if TARP ends up moderately in the red (assuming it’s not through waste, fraud, abuse etc). The programs that end up costing TARP money are doing good things. Projects such as the home mortgage modification program are helping people who are in a bad way, and it will keep families in houses. Even ignoring social programs like that, $100 billion isn’t a bad price to pay for averting catastrophic financial collapse. Of course, we shouldn’t have to pay that amount in the first place, but hey, that’s what financial regulatory reform is for.



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