Sorry America, We Didn't Really Make A $14 Billion Profit From Tarp

Despite what you might have heard about the US government making money from the bailout, the TARP investments are currently down about $148 billion and the losses from the larger bailout are incalculable.

Money in a trash can

Matt Taibbi points out that the good news stories in the New York Times and the Financial Times were predictable and highly misleading.

From Taibbi:

This is sort of like calculating the returns on a mutual fund by only counting the stocks in the fund that have gone up. Forgetting for a moment that TARP is only slightly relevant in the entire bailout scheme — more on that in a moment — the TARP calculations are a joke, apparently leaving out huge future losses from AIG and Citigroup and others in the red. Since only a small portion of the debt has been put down by the best borrowers, and since the borrowers in the worst shape haven’t retired their obligations yet, it’s crazy to make any conclusions about TARP, pure sophistry. Moreover, a think tank set up to analyse TARP, Ethisphere, calculated in June that TARP was still $148 billion down overall, a debt of over $1200 per American. To start talking about what a success TARP is now is beyond meaningless.

Even more importantly, focusing just on the TARP overlooks the trillions of dollars of other aid extended by the Federal Reserve and the Treasury. We simply don’t know how to value the mortgage backed securities the Fed bought. We don’t know how much the government will wind up paying on the backstops of Citi and Bear Stearns assets. And we don’t know how much more money might have to be pumped into the system to keep it afloat.

“In light of all this, the Fed’s decision to brag publicly about a few loans that are actually performing is sort of scary — it speaks to a level of intellectual desperation and magical-thinking unusual even for a banker in the subprime/MBS era,” Taibbi writes.

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