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| Economy | |
| Treasury has profited from big bank bailouts | |
| 2010-04-28 | |
| At a time when both parties are competing to crack down the hardest on Wall Street banks, it might come as a surprise to know that the Treasury has been making a tidy profit on most of the government's Wall Street rescue operations. What few in Congress are disclosing is that the government's non-bank rescues have become the biggest drain on taxpayers, including the burgeoning bailouts of mortgage giants Fannie Mae and Freddie Mac, insurance giant American International Group, and Detroit's General Motors and Chrysler.
While many smaller banks still have not repaid their government assistance, industry lobbyists say the much-maligned Troubled Asset Relief Program has proved to be mostly a big win for taxpayers and the economy. "Two-thirds of the TARP investment from banks has already been repaid with a large profit to the taxpayer," said Steve Bartlett, president of the Financial Services Roundtable. "TARP was a positive boost to the economy and the government, and taxpayers are seeing a positive return on their investment." The Federal Reserve reported last week that it had transferred a record $47.4 billion in profits to the Treasury in 2009 from its Wall Street rescue operations -- up 50 percent from 2008. About half of that came from interest that the central bank earned on Fannie Mae and Freddie Mac mortgage bonds it purchased in the past year to support the housing market and keep 30-year mortgage rates near record lows. The Fed's profits were used to help reduce the government's sky-high budget deficit, but were not enough to offset the huge cost of Fannie and Freddie's taxpayer bailout -- which stands at $127 billion and is expected to grow to as much as $400 billion by some estimates. In an unexpected development, the Fed said it was also on course to earn money on the notorious portfolio of supposedly toxic bonds it acquired from Bear Stearns two years ago to sweeten a merger deal it arranged with JP Morgan Chase. That deal marked the start of the government's massive Wall Street bailout operations, which burgeoned throughout 2008 as the threat of massive failure in the banking system forced Congress to enact the $700 billion bank bailout fund. But the mostly untold story is that most of the money was never used, in large part because the program was so unpopular that Wall Street banks -- worried about the congressional backlash and pay restrictions attached to the funds -- returned their bailout cash and then declined to take part in several programs that the Treasury set up to help unfreeze credit markets. Since the credit programs were barely used and loan securities markets have been rebounding on their own, the Treasury and Fed have been quietly shutting down the programs in recent months. | |
| Posted by:Steve White |
| #4 support the housing market It means the government manipulated the market to keep house prices higher than they would have been otherwise and hence increase the value of the toxic mortgage debt. Only governments have enough money to do this to domestic markets, and is the reason they made money on the 'toxic debt'. The losers are the millions of house purchasers forced to pay more than they would otherwise. |
| Posted by: phil_b 2010-04-28 02:19 |
| #3 The Chinese economy was rescued and kicked in high gear. Ha. But then, aren't they also on their way to becoming part of the DC Circle Jerk, ie our governing structure? That will occur formally on that day when no one but the Chinese central bank will buy our junk debt, and Tiny Tim Geithner et al leave government and begin signing retainer deals to serve as financial advisors to Chinese government entities seeking to take over, acquire, restructure, or arbitrage US assets. Stay tuned. |
| Posted by: lex 2010-04-28 00:53 |
| #2 I call BS. Not true. The Chinese economy was rescued and kicked in high gear. Super Luxury car companies too once Wall Street's TARP bonuses got paid out. |
| Posted by: ed 2010-04-28 00:46 |
| #1 "TARP was a positive boost to the economy and the government" I call BS. There was no boost to the economy, just a Washington crony capitalist circle-jerk in which Treasury built up the banks' reserves and rescued shareholders, and banks in turn stopped lending to small businesses and consumers. The banks are borrowing at close to zero rates. The banks are not lending. They are making money hand over fist, and the real economy is starved of credit. F&&& them, and f&&& their Washington cronies. We really need a new political class in this country. |
| Posted by: lex 2010-04-28 00:38 |