TARP Profits

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I’ve been complaining for a while now about the tendency of commentators to treat the $700 billion TARP bailout as if it’s 100 percent losses when it’s always been clear that some large fraction of that money was going to be recouped. Indeed, as Zachary Couwe writes in The New York Times thus far the government is earning healthy profits:


The profits, collected from eight of the biggest banks that have fully repaid their obligations to the government, come to about $4 billion, or the equivalent of about 15 percent annually, according to calculations compiled for The New York Times.

Two things happen in a panic. One is that huge profit opportunities arise for anyone who has a giant pool of cash or the ability to raise it. The other is that thanks to the “flight to quality” it’s suddenly very easy for the government to raise cash. Hence, profit. Which isn’t to say that we’ll see a profit overall, lots of opportunities for losses still exist:

The government still faces potentially huge long-term losses from its bailouts of the insurance giant American International Group, the mortgage finance companies Fannie Mae and Freddie Mac, and the automakers General Motors and Chrysler. The Treasury Department could also take a hit from its guarantees on billions of dollars of toxic mortgages.

This should be a real worry. That said, it’s worth noting that none of this is core TARP. AIG, Fannie, and Freddie are all separate initiatives. The Fannie & Freddie bailouts were inevitable and anyone would have done them. GM and Chrysler represented diversion of TARP funds away from their main purpose (banks) toward something progressives were more friendly to. It’s really only AIG on this whole list of bailouts were I think clearly condemnation-worthy recent policy mistakes were made. The underlying situation at Fannie & Freddie was a horrible policy blunder, but it evolved over the course of decades so it’s hard to point the finger at anyone in particular.