Outside editorial: TARP winners

Posted: Monday, April 12, 2010

The federal government poured hundreds of billions of dollars into a collapsing financial system 18 months ago. That bought some stability and eased the panic that had taken hold in the country. Now, surprise, surprise, surprise: It turns out that some of these crisis investments will even make money for taxpayers.

Take Citigroup. The government expects to sell its 27 percent stake in the giant bank by year's end. Based on the recent surge in Citigroup's stock price, taxpayers could net more than $8 billion from the sale of their 7.7 billion shares.

The Treasury Department reported Friday on the latest in a steady stream of banks that have paid back their government money. Hartford Financial Services Group has repaid the $3.4 billion it received.

There weren't many people in the darkest days of the financial crisis who thought that the $700 billion Troubled Asset Relief Plan - the most reviled government bailout in modern history - would include some plum deals for taxpayers.

Lawmakers and the public vented much of their anger on the big bank bailouts. Yet, they're turning out to be a good deal for taxpayers. Once the Citi stock sale is finished, about 75 percent of the $245 billion the government pumped into financial institutions will have been paid back. All the too-big-to-fail banks that got taxpayer funds will have repaid the government. Many smaller, regional banks still have government money.

Treasury, though, "estimates that its programs aimed at stabilizing the banking system will earn a profit thanks to dividends, interest, early repayments and the sale of warrants." Interest and dividends alone have already earned the taxpayers $14 billion.

All told, the Treasury had sent out $382 billion from TARP and been repaid $181 billion. Not all the $700 billion has been spent. (Nor should it be.)

The bank bailouts can be considered a win for taxpayers. The same cannot be said for other parts of TARP and for other federal bailouts that stemmed from the financial crisis. Miracles can happen, we suppose. But vying for taxpayers' biggest loser category right now are:

-Autos - General Motors repaid $1 billion last Friday, but the massive government investment in GM, Chrysler and their financing arms to keep them afloat remains an uncertain proposition for taxpayers. Taxpayers have spent $85 billion on the automotive industry and have recouped just $5 billion.

-Insurance - The government spent $182 billion to stabilize American International Group and the money remains at risk. (Some came from TARP, some from other stabilization funds.) Taxpayers still own about 80 percent of AIG.

-Fannie Mae and Freddie Mac - the terrible twins of mortgage finance didn't get a penny of TARP, but taxpayers have invested about $125 billion in them to help stabilize the housing market. An exit plan will require the administration and Congress to agree on comprehensive reform of these two entities. Their taking on excessive risks helped fuel the housing bubble and subsequent collapse. For all the focus on the sins of private industry, the two quasi-governmental giants caused by far the most harm in this sector.

Taxpayers are likely to wind up in the red from the sum total of the bailouts. There is still a steep price for salvaging the financial system. But it's good to note there are some winners. With the careful sale of assets - and if the government can now resist the urge to spend all of the money authorized for TARP - this frightening economic lesson can turn out a lot better than expected.

Not that anyone wants to try it again.

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