Breaking Even on TARP

Pulling Back the TARP

Is there a more reviled government program than TARP? It passed the House with 268 votes and the Senate with 74, and it helped stabilized the U.S. financial system. Yet elected officials run from TARP as if it were Mothra. It spawned a citizen’s revolt on the right (the Tea Party movement) and the left (Occupy Wall Street). It’s the one thing that unites Ron Paul and Dennis Kucinich. It has become synonymous with “bailout.” The FCC is considering adding TARP to the seven words that can’t be said on television. And everyone knows how much it cost … $700 billion in taxpayer dollars.

But what is TARP really? As it turns out, it is, almost entirely, just a big loan.

Taxpayers lent teetering financial institutions money so that these financial institutions would lend to taxpayers, homebuyers, small business owners, and commercial enterprises. Without capital to lend, economies seize up (see Europe). And just like regular people and businesses are expected to pay their loans back, receivers of TARP money were expected to pay off their loans too.

So how did they do?

Here is where the TARP accounting stands today (numbers in billions).^{1 2 3 4 5}

Our Methodology

The “$700 billion bailout” is just about to become a “break-even loan.”

Below is a breakdown of how we arrived at our numbers

$700b Total initial authorization for the TARP program (and its stubbornly enduring legacy).

$414.58b Total amount actually disbursed (loaned) to recipients as of 4/20/12.
$337.56b Total amount repaid to Treasury as of 4/20/12
(SIGTARP pegs the total amount repaid at $292.5 billion, but they do not include warrants, dividends, interest or other gains for banks and other credit market programs of $41.05 billion paid to taxpayers. The remaining $4 billion difference is mostly due to the different stock price on the date of the SIGTARP report and the date of our calculation.)
$77.40b Expected value of Treasury’s remaining assets. This number is determined by taking the money lent ($414.58b) minus money repaid (337.56b), plus the Estimated Lifetime Cost calculation ($.38b).
-$1.40b Treasury’s Estimated Lifetime Cost of TARP as of 2/29/12.⁶ *

+$0.38b Estimated Lifetime Cost of TARP as of 2/29/12 with updated change in values of $1.95b for AIG and -$0.18b for GM as of 3/31/12.⁷

It’s worth noting that less than $4b of the $46b obligated to Housing has been disbursed. There are conflicting projections on how much more will ultimately be spent on Housing (OMB counts the entire remaining $42b toward the cost of TARP, while the CBO projects that it will only be about $12b more). Rather than projecting or speculating on how much more will or will not be spent, or omitting Housing entirely, we decided to simply count what has already been disbursed ($3.68b) and not speculate on anything beyond the most current numbers provided by the Treasury Department—including potential gain/loss from stocks and other asset holdings.

Conclusion

Why does it matter that TARP is currently breaking even? Because it was difficult, bipartisan, unpopular, but absolutely necessary. We need to encourage elected officials to do more difficult, bipartisan, and potentially unpopular things that are absolutely necessary— things to ensure our nation’s economic system.

Continuing the fiction that it cost $700b is not only wrong, but damaging. It’s time to put the $700 billion myth to bed. As of late April 2012, TARP is breaking even, or darn near close to it. In the end, TARP may cost the taxpayer $10 billion or $20 billion, or it may turn a profit. But as a symbol of government’s action during the height of the crisis, its reputation as a voracious consumer of taxpayer dollars should be corrected.