"Bank Bailout = Profit"
Last time I wrote about what a great deal TARP had been for taxpayers, I wrote a little bit too broadly. The program gave very broad discretionary authority to the Treasury some of which was deployed for money-losing purposes. But the really hateful and unpopular thing about TARP is that it gave all this money to big banks—the very people responsible for the crisis in the first place! Insane! Unforgivable! But as Yalman Onaran and Alexis Leondis write for businessweek if you look narrowly at the bailing out of financial institutions this looks even better as a strictly fiscal measure:
The U.S. government’s bailout of financial firms through the Troubled Asset Relief Program provided taxpayers with higher returns than yields paid on 30- year Treasury bonds — enough money to fund the Securities and Exchange Commission for the next two decades.
The government has earned $25.2 billion on its investment of $309 billion in banks and insurance companies, an 8.2 percent return over two years, according to data compiled by Bloomberg. That beat U.S. Treasuries, high-yield savings accounts, money- market funds and certificates of deposit. Investing in the stock market or gold would have paid off better.
Dean Baker and others have argued, plausibly, that TARP wasn’t nearly as “necessary” as Bush/Paulson/Bernanke persuaded the congress that it was. There were, the case goes, alternate measures that the government could have undertaken to avoid total collapse. TARP just happens to have been the collapse-evasion method that the powers that be liked best because distress to the princes of Wall Street.
That may all be true. And indeed it would be a minor miracle of a program hastily assembled in the waning days of the Bush administration and implemented largely during a chaotic lame duck and administration transition phase were optimal. The counterpoint, however, is right there in the Businessweek story. Bailing out the banks “cost” a negative sum of money. It was a highly profitable mobilization of the government’s risk-bearing capacity. And when you do a cost-benefit analysis on a program with negative costs you find that even modest and speculative benefits end up looking great.