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Eye on the Bailout
Workers are seen beneath a Times Square news ticker announcing the congressional bailout bill passage on Oct. 3, 2008, in New York City. (Mario Tama/Getty Images)
After two years and half a trillion dollars, the federal bailout fund is set to expire Oct. 3. After that, the government won't be able to start new programs through the bailout, though it can continue paying money that's already committed.
We've been following every dollar via our Bailout Tracker. But with the end now in sight, we've decided it's time to get a bit nostalgic, take a step back and look at the bailout's recipients and programs that have shined -- and those that have flopped.
First, a Quick Bailout Refresher
In the fall of 2008 as the economy tumbled precipitously, Congress authorized the Treasury Department to spend $700 billion in a financial rescue plan called the Troubled Asset Relief Program. (TARP's spending cap shrank this summer to $475 billion as a result of financial reform.) TARP's largest programs included capital injections into banks, loans to the auto industry, direct support to AIG and the government's foreclosure relief efforts, mainly the mortgage modification program. Shortly after TARP, Congress passed a separate housing bill that authorized the rescue of the quasi-governmental housing giants Fannie Mae and Freddie Mac.
We've been tracking the aid for every recipient -- from local banks to General Motors. By our count, the Treasury has doled out more than $548 billion. Almost half of that -- $238 billion -- has been repaid to the government via interest, dividends, fees or repurchased stock warrants.
Some parts of TARP may be profitable as the government earns money from investments in financial institutions, but over all the program is expected to end up in the red. Because more than half of the funds are still outstanding, the total expense for the bailout remains up for debate. Cost estimates for TARP range from $66 billion (from the Congressional Budget Office) to $127 billion (from the president's Office of Management and Budget).
Now, on to the superlatives. Drumroll, please ...
Most Profitable TARP Bank Investment: Bank of America
Taxpayers have earned nearly $4.6 billion from the bailout of Bank of America, which received and fully repaid $45 billion in TARP funds. Citigroup took the same amount but has paid back only $20 billion. The rest was converted to common stock, which Treasury has been selling off.
Most Expensive Couple: Fannie Mae and Freddie Mac
The costs of TARP will likely be dwarfed by the expense of bailing out the two government-sponsored enterprises that guarantee mortgages, according to the Congressional Budget Office.
In September 2008 in an attempt to stabilize the housing market, the Treasury put Fannie Mae and Freddie Mac under conservatorship, assuming the costs of owning and guaranteeing the mortgages in their portfolio. Since then, the government has dispersed $85 billion to Fannie Mae and $63 billion to Freddie Mac to cover their losses.
Technically the government's investment in the GSEs has no funding cap. The CBO estimates the expense will reach $389 billion over 10 years.
Most Maligned Program: Capital Purchase Program
Public anger has targeted TARP's Capital Purchase Program, which bailed out more than 700 banks. That program, however, will likely be one of the most profitable parts of TARP. To bolster bank balance sheets, Treasury provided capital by buying shares of the banks. As banks pay out dividends, repurchase warrants and repay their loans, the government makes money. Though some banks are struggling to meet their obligations, the program overall should end up making a profit -- but just how much money it will make remains open to debate. Taxpayers are currently $47 billion in the hole on the program, according to the latest TARP report to Congress. Treasury says taxpayers will eventually make $9.8 billion, while the Congressional Budget Office says the program will make $2 billion.
Tardiest Bank: Saigon National Bank
California's Saigon National Bank holds the record for latest dividend payments of its bailout funds, missing seven consecutive quarterly payments -- that's every single payment. Saigon took $1.5 million in government funds, making it one of the smaller players in the Capital Purchase Program, the part of TARP that directly propped up "healthy" banks.
More than 120 banks missed their most recent quarterly payment. Most of those banks were small, like Saigon National.
Priciest Hot Rod: General Motors
The government spent nearly $50 billion to bail out General Motors, primarily to help the auto company restructure under bankruptcy protection. The government now owns 61 percent of the new, post-bankruptcy GM. The company has repaid $7 billion, but to recoup the remaining $43 billion, the government would have to sell GM stock at an average of $133.78 a share, according to the special inspector general for TARP. That's almost $40 a share more than the "old" GM's high, The Wall Street Journal reported. The sales will likely take place over several years and multiple stock offerings, the first of which will be this November.
The Congressional Oversight Panel also slammed the Treasury Department for missing opportunities "to increase accountability and better protect taxpayers" in the rescue of GMAC, the financing arm of GM.
Biggest Underachiever: Making Home Affordable
The Treasury Department set up its marquee foreclosures relief program, Making Home Affordable, as a pay-for-performance model. Under a complicated system of incentive payments, the government spends money only when mortgage servicers permanently modify mortgages. Since there have been few of those, the government has not spent much on the program. Making Home Affordable's maximum allocation is $30.6 billion, but so far less than half a billion has been paid out.
As we recently noted, if the program keeps up its current rate, it will help several hundred thousand fewer homeowners than even the Treasury's modest goals.
Biggest TARP Black Hole: AIG
No company has received more direct support than the insurance giant AIG, which had vast exposure to the problems in the housing market. By the end of 2009, AIG's outstanding balance was $47 billion from the Treasury Department and $81 billion from the New York Fed, according to the CBO.
AIG has not repaid any of the investment nor has it doled out any dividends, but an end may be in sight. Today's news confirmed other recent reports: that AIG has reached an agreement with the government to repay bailout funds, but it must first pay back the Fed before settling up with Treasury, which currently owns 80 percent of the company. Under the repayment arrangement, Treasury will own more than 90 percent of AIG and will sell off those shares over time.
Dagny Rose
Today, 3:49 p.m.
First Barney Frank insists “a home in every driveway”, resulting in the massive number of Liar Loans that cascaded into the Wall Street meltdown. Now the same Balarney is asking that mortgage companies “stop working with so-called ‘foreclosure mill’ law firms under investigation for document fraud”. Fraud in the making; fraud in the unmaking. Your government at work.
Carol Davidek-Waller
Today, 4:29 p.m.
You are mistaken in who is at fault. Of those “liar loans” most were fraudulent loans. Insiders got special treatment. If you were a developer instead of a home owner, you could stuff your pockets and no one checked your credit rating. Homeowners are victims not perps. The Wall Street Casino is to blame not the government. Private interests brought the economy to its knees. This government is guilty of neglect. They refuse to prosecute white collar criminals and they are not helping their vicitims.
Michael McCarthy
Today, 4:48 p.m.
To be sure Barney Frank along with Fannie and Freddie played their part in the mortgage meltdown, but look to Wall Street and the entire mortgage industry if you’re really interested in finding the culprits. Fannie and Freddie had automatic underwriting standards in place circumvented by loan officers and borrowers willing to lie about the applicants credit worthiness. Wall street encouraged poor to outright fraudulent lending for the fees. Keep in mind it was all about the fees. Ratings agencies gave tranches of CDO’s filled with subprime mortgages aaa ratings for the fees. Loan officers, underwriters, mortgage bankers and investment bankers who securitized pools of mortgages knowing the danger of failure did so anyway because of the fees involved even to the point of purposely including subprime “liar loans” in these securitizations so they could collect the fees and then bet against the CDO with default swaps(CDS). Fannie and Freddie got into deep trouble not so much by lowering their standards but by purchasing these same CDO’s from Wall Street when their CEO’s decided they weren’t making enough money compared to WS CEOs.
michael kelley
36 minutes ago
In college I was a financial management major and economics minor with $20,000 in Wall Street and not a care in the world. Life for me since then has been up and down but getting through the downs made the ups much more rewarding. I know that all economies are built from the bottom up and not from the top down. To repair our broken economy we must start at the bottom and work toward the top. Obama and his advisers made a tragic mistake when they chose to bail out Wall Street Bankers and big industries that were broke because of poor management. So now Obama and the nation have a huge unemployment problem that continues to get worse because Obama chose to help the big guys and leave the millions of hard working men and women to fend for themselves. This problem will be with us for a long, long time and cost us much more money then we"ll make off our Wall Street Bailout. I’m 74 years old and I know that I’ll never see the end of this ignorance and insanity. ‘Tis truly sad. Michael Kelley
Yoram Gat
0 minutes ago
So the Fed has doled out money in addition to the $548 billion given out by the Treasury? What is the total of that? How much of that money can the tax payer expect to see back?
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