Under the TARP

Remember the trillion-dollar bank bailout initiated by President Bush? It's going to end up costing only about $50 billion, which didn't go to banks. And it might not have bailed anything out. But keeping with tradition, let's call it a trillion-dollar bank bailout.

The legislation had a price tag of $850 B at the time (October 2008): $700 B for the Troubled Asset Relief Program itself and another $150 B of unrelated "sweeteners" our deficit-phobic congressmen demanded as their price for voting "yes." Here is the basic accounting of that $700 B for TARP itself, according to the US Treasury Department.

  • $475 B was "allocated."
  • $388 B was actually spent somehow.
  • $204 B was paid back by August 2010.

That leaves TARP $184 B in the hole right now. But the Treasury Department expects more to be repaid. In fact, it expects all but $51 B to paid back.

(The Congressional Budget Office says TARP cost $151 B in FY 2009, its first year. In FY 2010, TARP will make money: $106 B. So much of that $388 B must have been paid back almost immediately -- well within its first year of operation.)

Now, you might think the banks owe us taxpayers that $51 B.  Not at all. In fact, the banks will have made money for us taxpayers, to the tune of $16 billion.

Then where did that $51 B go?
  • $46 B to "housing programs."
  • $17 B to buy car companies.
  • $5 B to AIG.
  • -$1 B in "credit market programs."
  • -$16 B to (from) banks.

What's more, if you throw in some non-TARP money, even AIG will have made money for taxpayers: a net $17 B. That's right, folks: banks, including AIG, were net moneymakers for taxpayers. All the money, all the money and then some, went to General Motors, Chrysler, and government housing programs.

Oh, and don't forget that original $150 B in government fun-money called sweeteners. So here is how it really breaks down for taxpayers (with positive figures meaning additions to deficits, or money taken from taxpayers).

  • $150 B in "sweeteners" unrelated to TARP or saving the financial system.
  • $46 B in government housing programs.
  • $17 B to buy car companies that went bankrupt anyway.
  • -$34 B from banks, AIG, and other credit market programs.

So when the dust has settled, the whole mess will have cost taxpayers $179 B, with $150 B of that being the "sweeteners."

For the banks making $34 B for taxpayers, politicians expect them to say "thank you" and to forgo bonuses and other forms of high pay. Given that at least some of those banks never wanted the money in the first place, just who bailed out whom?

Maybe we should be thankful. After all, TARP saved us from complete financial breakdown at a bargain basement price. Really?

The Treasury Department is quick to say TARP was a success. Their logic is pretty pure post hoc ergo propter hoc: things started getting better after TARP was passed. It is also self-serving: Treasury was authorized to spend $700 B to save the world, and sure enough, Treasury saved the world.

Getting out of recessions is much like the old joke that if you treat a cold, you'll get over it in seven days; otherwise, it takes a week. If government helps, a recession lasts four quarters, but if it doesn't, the recession lasts a year. The trouble is, the government helped a lot this time (TARP, multiple stimuli), and the recession lasted a year and a half, longer than usual. We are supposed to trust the experts that things would have been even worse without their help.

Trying to find actual cause and effect in Treasury's report is a task beyond my talents. Treasury admits that TARP was originally set up to "buy mortgage loans, mortgage-backed securities and certain other assets from banks." Those were the "troubled assets" the whole program was named for.

But then, it didn't do that. It did not buy troubled assets. What it did instead was provide "capital injections" which were needed to "stabilize the banks and avert a potential catastrophe."

There must be something I don't get, because that all sounds like the logical flaw that used to be called "begging the question," or assuming what needs to be proved. How do we know the banks needed capital injections to avoid catastrophe? Because Treasury said so.

(Not to mention that the banks could have been "recapitalized" by simply waiving mark-to-market rules imposed by the fairly recent Sarbanes-Oxley regulations of 2002. But gee, why try deregulating in 2008 what you regulated in 2002 when you can ask for a trillion-dollar bailout one month before a presidential election instead?)

In summary, the "bank bailout" was not a bailout and did not go to banks. The "capital injection" was from taxpayers and banks into the federal government so it could take over car companies and more home loans.

We taxpayers, who will have forked over $179 B for this, are supposed to thank our government for saving us from catastrophe. The banks, who will have forked over $34 B, at least some of them not so voluntarily, are supposed to thank the government and forgo bonuses.

In the meantime, government took over Fannie Mae and Freddie Mac and maybe 90% of the home loan market. It took over two of the Big Three car companies. And it spent $150 B on who-knows-what.

All of that before an $814-B stimulus, a $410-B omnibus spending bill, a takeover of all student loans, a trillion-dollar takeover of health care, and the effective takeover of the financial industry with kitchen-sink regulation.  lus trillion-dollar deficits from here to eternity just for general principles.

As President Obama said of the Tea Party, "You would think they should be saying thank you."

I plan to show my thanks in November.

Randall Hoven is the creator of Graph of the Day. He can be contacted at randall.hoven@gmail.com or via his website, randallhoven.com.