WSJ (April 13, 2012):
US Treasury: Taxpayers Likely to Profit From Financial Rescue Programs
The Obama administration, mounting a broad defense of its response to the financial crisis, said Friday taxpayers are likely to realize an overall profit from the suite of government rescue programs launched from 2008.
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Reality :(
HuffPo (April 25, 2012):
Christy Romero, the Special Inspector General for the Troubled Asset Relief Program: "It is a widely held misconception that TARP will make a profit," she writes right at the top of her 327-page report. "The most recent cost estimate for TARP is a loss of $60 billion. Taxpayers are still owed $118.5 billion (including $14 billion written off or otherwise lost)."
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More Reality :(
WSJ (April 24, 2012):
Ms. Romero noted that taxpayers are still owed $118 billion, a figure she said included investments in AIG, GM, Allly Financial and other smaller programs under the TARP umbrella in addition to the outstanding loans to smaller banks. She also counted $4.2 billion Treasury had written off and realized losses of $9.8 billion "that taxpayers will never get back."
351 small banks with some $15 billion in outstanding TARP loans face a "significant challenge" in raising new funds to repay the government. ... "The status of those banks is one of the major issues facing TARP nearly four years after the financial crisis," the report says. ... Their numbers and profitability have been declining due in part to regulatory and technological changes that made bigger institutions more profitable.
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More More Reality :(
Daniel Indiviglio, Reuters Breakingviews columnist (April 25, 2012):
What it calls a gain looks more like a loss of at least $230 billion.
Treasury’s rosy projections aren’t half as bad as its methodology. The government declares a return when an investment’s payments exceed the initial cash outlay. That boldly disregards the cost of money and its value over time.
By contrast, consider Warren Buffett’s bet on Goldman Sachs. In the thick of the crisis, he loaned the bank $5 billion in exchange for 10 percent annual interest and stock warrants. Goldman paid back the Oracle of Omaha a few years later. Though hanging on to the warrants may cost him in the end, even without them he booked an annualized return of 14 percent.
Compare that to TARP, which had seven broad components. Start with the banks. Treasury estimates an ultimate profit of $22 billion. Even if that’s achieved by year’s end, taxpayers will have earned a paltry annualized return of 2 percent. Simply investing in the S&P 500 index would have earned 14 percent a year. Worse, applying Buffett’s Goldman return as the risk-based cost of capital turns the net present value of the bank rescue into a loss exceeding $15 billion.
Source: http://economics21.org/blog/tarp%E2%80%99s-illusory-profits
Source: http://www.breakingviews.com/tarp-success-doesn%E2%80%99t-make-it-good-finance/21013884.article
Source: http://www.huffingtonpost.com/2012/04/25/tarp-profit-a-myth_n_1450363.html
Source: http://www.businessweek.com/news/2012-04-13/treasury-says-crisis-stability-programs-expected-to-break-even
Source: http://online.wsj.com/article/SB10001424052702303978104577364262736412398.html
Source: http://www.sigtarp.gov/Quarterly%20Reports/April_25_2012_Report_to_Congress.pdf
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