TARP

TARP – the Troubled Asset Relief Program – was the famous “$700 billion bailout” that the U.S. government undertook in 2008 to try and stave off the mortgage crisis. The crisis that led to this program was the basis for the book (and movie) Too Big To Fail.

Did the government lose $700 billion? Was it repaid? Did the government make money?

Well, no one knows, really. The U.S. economy is incredibly complex, and TARP was a huge program that can’t be isolated from everything else going on in the economy back then, so it’s hard to know what really happened in the final analysis.

I spent some time reading articles. I searched for things like:

• did tarp make money
• did tarp lose money
• tarp lost money
• the cost of tarp
• tarp disaster treasury

Most articles said TARP made a profit, so I made my queries progressively more negative to try to turn up contrary stories. Additionally, I did some specialized searching on politically conservative sites to try to find dissenting opinions (there are a few below).

I found common themes, many of which contradict each other:

• The $700 billion number was authorized but never fully used; the actual money paid out was only around $400 billion
• The TARP money was repaid
• Technically, the government made a profit on the outflow and inflow
• A lot of the “repayment” was with other government money, so we were just moving losses around
• TARP was a smaller part of a larger government rescue program, other parts of which lost money
• Inflation ate up a lot of the profit in between payout and payback
• Reports of a TARP profit are just mainstream media groupthink, and no one is looking at it critically

Again, those are a fix of facts, opinions, and highly disputed claims.

When reviewing articles below, note the dates. There were “clusters” of articles around milestones in TARP – when the disbursement program ended (sometime in 2010), when the last repayments were made (2015, it looks like), whenever Timothy Geitner made a public statement, whenever the government issued reports, etc.

Also note that some of the early articles and opinions were written while TARP was still open – they’re “hot takes” on a program that was still very politically unpopular and hadn’t had time to take effect and judged on its results.

It seems that no one has really talked about TARP much in the last few years.

So, did TARP make money or lose money? I don’t know. My gut tells me it made a profit on paper, but it lost money when you dig deeper into the details of where that money came from.

And none of this answers the real question: regardless of profit or loss, was TARP necessary and helpful? Again, that can be debated forever, but the general theme I picked up is that TARP wasn’t great, but the alternative would have been worse.

Happy reading.

Who Won, Lost Under TARP? (Newsweek, January 2010)

Treasury officials are quick to point out that those three banks have returned all their funds. And AIG, the biggest holder of bailout money, is selling several of its units to pay down its TARP obligations. Treasury officials say they expect the ultimate cost of TARP to the taxpayer to be around $50 billion – far less than the $340 billion originally expected. Roughly $200 billion has already been recovered.

Did the TARP Money Really Get Paid Back? (National Review, August 2010)

If TARP had only done what TARP was supposed to do – prop up the banking system – it still would have been a mess, but a mess for which the banks, not the taxpayers, ultimately would have picked up the tab. With everything that’s rolled up into TARP, we’re going to take a bath.

Did TARP Really Pay Off for Taxpayers? (CBS News, October 2010)

The collective effort succeeded in ending the financial panic, and Treasury never came close to spending the authorized $700 billion. Indeed, TARP’s total cash outlay is likely to be less than $50 billion after the loans are all paid back. The program could even turn a profit overall-not just on the financial bailouts cited by Bloomberg – if the equity investments in auto makers and banks pan out.

Bank Bailout Returns 8.2% Beating Treasury Yields (Bloomberg, October 2010)

The government has earned $25.2 billion on its investment of $309 billion in banks and insurance companies, an 8.2 percent return over two years, according to data compiled by Bloomberg.

TARP Was No Win for the Taxpayers (Wall Street Journal, March 2011)

So the taxpayer-backed GSE guarantee enables the Fed to prop up the market with taxpayer funds, in turn allowing the TARP banks to “repay” their TARP funds. The bailout of the [government sponsored entities] by Treasury thus shifts potential losses from TARP to other programs that have less oversight and public scrutiny. Any evaluation of TARP’s success must take into account the interaction among all government programs designed to prop-up the financial system, and the shifting of costs among these programs.

TARP Uncovered – the Real Cost of the Government Bailout (Huffington Post, May 2011; it’s refuting a NY Times article, but the link is invalid)

Focusing solely on TARP and ignoring the other more costly portions of the government bailout of our biggest banks and corporations ignores the true cost of the government’s (both the Bush and Obama administrations, the Fed and Congress) inept response to this crisis. One of the reasons that TARP did not cost more was because of the government’s other more costly bailout policies, and to ignore them is to dramatically understate the true cost of the bailout.

TARP Prevented Disaster, but Full Exit a Long Way Off (CNBC, May 2011)

There have been stunning turnaround stories: GM stripped itself of legacy problems and engaged in a wildly successful IPO in November. AIG sold off large portions of itself to private buyers and is poised for a “re-IPO” selling government shares into the private market this week. TARP’s big-bank recipients paid back their loans – with interest – and although many small community banks still owe Uncle Sam, the bank bailout as a whole actually earned a profit for the US taxpayer.

TARP Hangers-On (Mercatus, March 2012; this mostly quotes a GAO report (PDF))

The GAO found that nearly half of the banks that have returned their TARP money have done so with money from other taxpayer-funded programs that support banks.

TARP May Have Stopped Disaster, But Voters Don’t Care (Business Insider, October 2015)

This ongoing hostility toward the program continues even as new reports show that, in the end, TARP may not cost taxpayers anything. The Treasury Department reported recently that, in the worst case scenario, the net cost of TARP will be about $50 billion. In the best case scenario, the government may actually make money off its investments.

Overselling TARP: The Myth of the $15 Billion Profit (National Review, January 2015)

Now, while a profit of $15 billion sounds enormous, it only amounts to a nominal annualized return of 0.6 percent. Even Treasury Bills (maturing after three years or longer) would have been a better investment, so this is hardly impressive. […] which would imply that TARP actually netted a loss of nearly $24 billion.

Bailout highly profitable for taxpayers, when you look at the right numbers (Washington Post, January 2015)

The actual taxpayer profit on the bailout is about $350 billion, by my math. That’s right, $350 billion. […]

Tarp was not a bailout, and the government’s profit was huge (American Banker, May 2017; most of this is paywalled, so I can only excerpt from the first paragraph)

Last week, the Treasury Department announced that the final major investment in a bank from the Troubled Asset Relief Program had been repaid and that the government had made a total profit of $30.7 billion on the program. Of course, this story did not appear in any of the major media, and 99% of the media and the public probably still believe the government lost hundreds of billions of dollars on “bailed out” banks.

Measuring the Cost of Bailouts (Annual Review of Financial Economics, 2019; paywalled, quote below is from Wikipedia)

A 2019 study by economist Deborah Lucas published in the Annual Review of Financial Economics estimated “that the total direct cost of the 2008 crisis-related bailouts in the United States” (including TARP and other programs) was about $500 billion, or 3.5% of the United States’s GDP in 2009, and that “the largest direct beneficiaries of the bailouts were the unsecured creditors of financial institutions.”[90] Lucas noted that this cost estimate “stands in sharp contrast to popular accounts that claim there was no cost because the money was repaid, and with claims of costs in the trillions of dollars.”[90]

Why I Looked It Up

I lived through this mess. I just always wondered.

Postscript

A quick note in The Model Thinker:

We do know that the government earned a $23 billion profit on its loan to AIG.

It was discussing the modeling used to determine which organizations to rescue and which to let fail during the financial crisis.