The final tally isn’t in yet, but the great bank bailout of 2008 is actually turning out to be a pretty good deal for the taxpayer–at least the TARP part of it.
At the time Hank Paulson got on his knees and begged Congress to pass TARP, he promised that it was an investment, not a gift. At the time, here and elsewhere, he was roundly ridiculed for that.
Well, let’s just say that Hank’s legacy is looking better all the time…
Dan Gross, Newsweek: The final cost of TARP will be a fraction of the original $700 billion, and taxpayers are turning a profit from its central component: the Capital Purchase Program…
The spreadsheets at financialstability.gov document the status of the 667 investments, worth $204.4 billion, made under the CPP.
Morgan Stanley, which borrowed $10 billion in October 2008, paid back the cash in June and purchased the warrants for $950 million on Aug. 12, giving taxpayers a 12.7 per cent return, according to SNL Financial. For the 22 companies that have bought back shares and warrants, the taxpayer received an annualized return of 17.5 per cent—better than most hedge funds have done lately. (Another 15 have repaid part or all of the principal.) Since many of the largest financial institutions have left the program, the 37 “exits” represent 34 per cent of the total cash initially disbursed. The bottom line: taxpayers have received $70.3 billion in principal, plus about $10 billion in dividends and warrant payments. This money goes back into the Treasury’s general fund, while the CPP continues to dole out cash to little banks… Today, 633 banks owe $134.2 billion.
Investors have seen other returns. Since the Treasury Department in July converted the $25 billion CPP loan to Citi into common stock, at $3.25 a share, the U.S. taxpayer now holds 7.69 billion shares of the once mighty bank. As of Aug. 26, thanks to the rallying market, taxpayers were sitting on a $10.52 billion paper gain.
The early returns don’t reflect the returns on the broad pool, of course, because the healthiest banks gave the money back first. And as Gross notes, the TARP was a lot more than the Capital Purchase Program: There was also the $200+ billion given away for mortgage mods, car company loans (gone), and AIG (basically gone). But it’s unlikely that the TARP is going to be the big black hole that many thought it would be.
Of course, the bailout is bigger than TARP. And the bailout is still costing the taxpayer an arm and a leg. but those who believe it prevented another Great Depression can argue, as Paulson did, that it was cheaper than the alternative:
In late August, the Office of Management and Budget said the lower-than-expected cost of bailing out the financial system—including the money paid back from the CPP—meant the 2009 fiscal deficit would be $1.58 trillion, $262 billion less than the prior estimate of $1.84 trillion. Lee Sachs, counselor to the Treasury secretary, invokes the MasterCard ad in weighing the true yield. “Dividends: 5 per cent; equity warrants: 2 per cent. Financial system not going into total abyss: priceless.”