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| TARP Bailouts to be cheaper than expected | |||||
| 2011-02-28 | |||||
"It's turning out to cost one heck of a lot less than what we all thought at the beginning," said Ted Kaufman, a former U.S. senator from Delaware who heads the congressionally appointed panel overseeing TARP. In mid-2009, the program was projected to lose as much as $341 billion. That's been reduced to $25 billion — partly because of the controversial decision to pump much of the TARP money into banks instead of launching a large-scale purchase of securities backed by toxic subprime mortgages. There is now broad agreement that the bailouts worked, stabilizing the financial system and preventing an even deeper crisis. Still, many people are worried about the long-term effects of the government actions. They said that in demonstrating a belief that some companies were too big to fail, the government set a dangerous precedent, opening the door to future crises. Those critics also said that hundreds of billions of dollars in bailout money from TARP, the Treasury and the Federal Reserve will not come back, mainly because of the rising tab for seized housing finance giants Fannie Mae and Freddie Mac, which combined have consumed $150 billion in taxpayer money so far.
Fannie and Freddie, which the Obama administration recently proposed to shut down, are the main reason most recent estimates of losses for all the various bailout efforts range from $238 billion to $380 billion. But Treasury officials think those estimates might be too high. They said the total cost of all the financial interventions is likely to be less than $140 billion, or 1% of the United State's $14-trillion annual economic output. That's less expensive than the federal losses from the savings and loan crisis in the late 1980s and early 1990s, which cost an estimated 2.4% of the nation's annual economic output at the time, according to a study by the International Monetary Fund. In the recent recession, the federal government intervened with "overwhelming force and speed," said Timothy Massad, TARP's acting manager. "We stopped the panic," he said. "We were then able to recapitalize the system very quickly with private capital Â… get the credit markets working again, and that laid the foundation for an economic recovery."
Banks have paid back close to all of the $245 billion they received, and the Treasury Department estimates that interest and dividends on those cash infusions ultimately will give taxpayers a $20-billion profit. Last year's highly successful stock offering by General Motors Co. means losses from its rescue, along with losses from rescuing fellow automaker Chrysler and the two companies' financing arms, are projected to be $19 billion — much less than what was anticipated when the government pumped about $80 billion into the auto industry.
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| Posted by:Steve White |
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| Posted by: Free Radical 2011-02-28 14:25 |
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| Posted by: Bright Pebbles 2011-02-28 11:51 |
| #1 |
| Posted by: gorb 2011-02-28 11:22 |