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The posted article is a common argument these days. Apart from principled objections to government bailouts, are the facts correct? Did the government make money on TARP?
Politicians love to criticize the $700 billion bailout to banks, insurance companies and the auto industry made by President George W. Bush and President Barack Obama. But there is something about the bailout program that most politicians will not share with you.
The Troubled Asset Relief Program, or TARP - otherwise known as the Big Government Bailout - was a tremendous success.
First of all, only $387 billion of the $700 billion was actually spent. Second, most of that money has either been repaid or is scheduled to be repaid. Third, the funds are being repaid with interest.
The deadline for asking for TARP money was Sept. 30. So we can now get a better idea of how the TARP funds were used, as well as the method and timeline for repayment. We now know, for example, that most of the borrowed money went to banks. What most people may not know, however, is that the banks have already repaid 75 percent of the money loaned to them with interest. For example, JP Morgan repaid its loan with $795 million in interest. Goldman Sacks paid $425 million in interest, and BB&T paid $93 billion in interest.
About $70 billion of the money went to save the American International Group or AIG. Last week the government announced that it had negotiated a repayment plan that involves the public sale of AIG stock owned by the U.S. government. If the government's stock was sold based upon AIG's closing stock price on October 1, the government would earn a $22 billion profit. And as AIG's stock continues to increase in value, so does the profit.
The rest of the TARP money was used to save the U.S. auto industry, as well as thousands of jobs from suppliers who depend upon the auto industry for their survival. Most, if not all, of this money is expected to be returned with interest. General Motors, for example, will soon be selling public stock again, perhaps as early as next month. As the government's stock in GM is sold, more TARP money returns to the U.S. Treasury.
According to the latest estimate, in a worst-case scenario, the real cost of TARP will be between $30 and $50 billion, not the $700 billion you hear from politicians. In a more likely scenario, the U.S. government will make a profit from TARP investments that save us from a second depression.
Not bad for a government program. But according to a recent poll by Bloomberg News, only 30 percent of Americans believe that TARP was necessary even though economists believe that without TARP, unemployment would have peaked at 16 percent instead of 10 percent.
For some politicians who voted for the unpopular TARP, the good news about the program's success comes too late. Bob Bennett, for example, a Republican senator from Utah, lost his primary bid mostly because of his TARP vote. He recently said, "My career is over, but I do hope that we can get the word out that TARP, number one, did save the world from a financial meltdown and, number two, did so in a manner that, I believe, won't cost the taxpayer anything."
Voting for TARP was unpopular because American voters blamed Wall Street for getting us into this mess in the first place and it didn't help them directly. What it did do what keep a bad situation from getting worse, but try telling that to someone who just lost their job.
Like it or not, history will show that TARP got us out of a dire situation and was instrumental in putting us on the road to economic recovery.
Politicians love to criticize the $700 billion bailout to banks, insurance companies and the auto industry made by President George W. Bush and President Barack Obama. But there is something about the bailout program that most politicians will not share with you.
The Troubled Asset Relief Program, or TARP - otherwise known as the Big Government Bailout - was a tremendous success.
First of all, only $387 billion of the $700 billion was actually spent. Second, most of that money has either been repaid or is scheduled to be repaid. Third, the funds are being repaid with interest.
The deadline for asking for TARP money was Sept. 30. So we can now get a better idea of how the TARP funds were used, as well as the method and timeline for repayment. We now know, for example, that most of the borrowed money went to banks. What most people may not know, however, is that the banks have already repaid 75 percent of the money loaned to them with interest. For example, JP Morgan repaid its loan with $795 million in interest. Goldman Sacks paid $425 million in interest, and BB&T paid $93 billion in interest.
About $70 billion of the money went to save the American International Group or AIG. Last week the government announced that it had negotiated a repayment plan that involves the public sale of AIG stock owned by the U.S. government. If the government's stock was sold based upon AIG's closing stock price on October 1, the government would earn a $22 billion profit. And as AIG's stock continues to increase in value, so does the profit.
The rest of the TARP money was used to save the U.S. auto industry, as well as thousands of jobs from suppliers who depend upon the auto industry for their survival. Most, if not all, of this money is expected to be returned with interest. General Motors, for example, will soon be selling public stock again, perhaps as early as next month. As the government's stock in GM is sold, more TARP money returns to the U.S. Treasury.
According to the latest estimate, in a worst-case scenario, the real cost of TARP will be between $30 and $50 billion, not the $700 billion you hear from politicians. In a more likely scenario, the U.S. government will make a profit from TARP investments that save us from a second depression.
Not bad for a government program. But according to a recent poll by Bloomberg News, only 30 percent of Americans believe that TARP was necessary even though economists believe that without TARP, unemployment would have peaked at 16 percent instead of 10 percent.
For some politicians who voted for the unpopular TARP, the good news about the program's success comes too late. Bob Bennett, for example, a Republican senator from Utah, lost his primary bid mostly because of his TARP vote. He recently said, "My career is over, but I do hope that we can get the word out that TARP, number one, did save the world from a financial meltdown and, number two, did so in a manner that, I believe, won't cost the taxpayer anything."
Voting for TARP was unpopular because American voters blamed Wall Street for getting us into this mess in the first place and it didn't help them directly. What it did do what keep a bad situation from getting worse, but try telling that to someone who just lost their job.
Like it or not, history will show that TARP got us out of a dire situation and was instrumental in putting us on the road to economic recovery.
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