Treasury's Financial Rescue Cost Down to $30 Billion

So the Troubled Asset Relief Program (TARP) ended on October 3.  Demagogues on all sides of the political spectrum love to hate TARP, and decry the $700 billion the US government put on the line to rescue the financial sector and the largest banks.  The facts, however, do not square with that position.  As hard as it might be for the right wing ideologues to understand that government intervention in the market is necessary and fruitful, and as difficult as it is for the left ideologues to fathom the idea of the government helping big financial institution in a crisis (even in order to keep the entire system from collapsing), the facts contradict the narrative pushed relentlessly by both ideological extremes.

And the fact is this: with respect to TARP, the dirty dirty thing one must not be seen as supporting on the campaign trail has succeeded beyond anyone's wildest dreams at the time it was enacted, and it has done so at less than 5% of its original cost.  That's right.  Earlier this month, the Department of Treasury updated the net cost estimate of TARP and the AIG bailout to $30 billion on taxpayers.  The cost estimates have steadily declined since enactment.
The news of the shrunken cost, which comes on the two-year anniversary of the legislation that created TARP, represents a dramatic improvement. It highlights the resilience of the markets, as well as the folly of short-term financial projections. In August 2009, the TARP cost was projected to be $341 billion. In its mid-session review, released in August of this year, the Office of Management and Budget projected the total cost would come to $91 billion.
By the way, all of the current $30 billion cost estimate is the part of the TARP that was designated for Housing assistance.  No other part of the program is now expected to lose money.  With good management and with banks and financial institutions paying back their TARP loans, it's even conceivable now that TARP, when all is said and done, will make a profit for the American taxpayer.  As a matter of fact, the financial institution and banks portion of the TARP is actually expected to make a profit, which, the Treasury now estimates will be roughly balanced out by the portion of TARP funds we will lose in the auto industry rescue.
Treasury now expects that it will ultimately lose $17 billion on its efforts to aid the auto industry. "The returns we'll get from our investments in banks and AIG will be more than enough to cover the money we'll lose in autos," said Geithner.
How did this happen?  How did a program that has been so vilified become so successful in reality?  Several factors have gone into that success, in my analysis, and nearly all of these factors can be credited to Democrats.

First, when Bush's Treasury Secretary Hank Paulson showed up to Congress with a three-page bill to give him $700 billion to spend however he pleases with zero Congressional or Judicial oversight, the Democratic Congress rejected him.  They instead wrote a bill with accountability, in the form of the Congressional Oversight Panel, which everyone on the left side of Ron Paul is thankful for, and was, until recently, chaired by Elizabeth Warren.  If anyone in the federal government has done their job over the past two years, it's this panel, and their (and Elizabeth Warren's) tireless work has held the Treasury's feet to the fire, and advocated for ordinary Americans.

Second, Just four months into the enactment of TARP, President Obama, a new Democratic administration and expanded Democratic majorities in Congress took office.  Obama's Department of Treasury subjected banks to stress tests to ensure banks had enough of a capital buffer to cover bad loans, and pushed the ones that failed the stress tests to raise more capital.  In addition, Obama administration officials kept an eye on bank largesse while they were on the taxpayer dole.  President Obama himself stepped in and stopped Citigroup's $50 million luxury jet purchase.  His TARP pay czar Ken Feinberg cut the pay of 25 executives of seven banks receiving TARP funds by 90 percent.  All this gave the banks and other financial institutions an incentive to pay back the TARP loans, which is exactly what we see happening today.

Finally, let's not forget the meaningful Wall Street Reform enacted by this Democratic Congress and this President this year protecting consumers and better regulating financial institutions, derivatives and mortgages; reform that, coupled with the Obama administration's global leadership, is now achieving global success in regulating banks.

But TARP wasn't all of the financial sector rescue bill footed by the taxpayers, you say.  And you are correct.  Congress and the Federal Reserve made significant other investments to back up and rescue the financial system of this country.  But once again, with good management, Treasury Secretary Geithner reminds us, as a portion of the economy, saving the financial system from the worst financial crisis since the Great Depression cost us a fraction of what it cost to fix the Savings and Loans debacle.
Even looking beyond the TARP to the losses associated with Fannie Mae and Freddie Mac’s pre-crisis mistakes, the direct costs of the government's overall rescue strategy are likely to be less than 1 percent of GDP. By comparison, the much less severe savings and loan crisis of the late 1980s and early 1990s cost 2 1/2 times that as a share of our economy.
Could more have been done with TARP and other economic rescue measures?  Could the money have been used more efficiently or in different ways?  I am sure that it could have been.  But we must all recall that we were operating in the environment of an economic meltdown, on the brink of a second great depression, with the economic nuclear clock ticking.  The market crash, the institutions collapsing, the massive near a-million-a-month layoffs, the home values on a freefall, and an economic panic created an absolute emergency.  In that emergency, there is very little time for second guessing and contemplation.  The administration had to do what they had to do quickly to keep the stock market from wiping out everyone's retirement savings, to prevent a run on the banks, and to keep the economy from falling off into a spiraling depression without parallel.

So as we examine the different parts of TARP and offer substantial, major, and proper critiques of the program, we should keep in mind what kind of conditions it had to be implemented under.  The popular anger has already been ginned up of course, and I doubt many are going to take the time to read this piece or to analyze the financial rescue in context, but the context is still important, as are the end results and net costs.

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