If you had qualms about the federal government's decision to react to the financial crisis by taking billions of your tax dollars and handing them over to the highly compensated people who helped create the financial crisis, perhaps you can find solace in the news that we've actually made money on the deal. A new study reported on by Reuters today says the largest component of the TARP fund has netted the U.S. more than $10 billion in profit so far.
The $700 billion Troubled Asset Relief Program was originally intended to purchase, as the name implied, troubled assets. But it rapidly transformed itself into an all-purpose emergency fund. The largest component, the $205 billion Capital Purchase Program, used government money to shore up overleveraged banks. More than 700 banks, including Goldman Sachs and Citigroup, took the money, which was offered in the form of loans and stock warrants. And according to a new report from the research firm Keefe, Bruyette, & Woods, the U.S. Treasury invested wisely.
So far, 61 banks have completely repaid their debt under the program, and the U.S. earned a 10 percent return on those investments, totaling $13 billion. There's still $65 billion in debt outstanding, but Treasury has only taken a $2 billion loss on the program thus far, and a KBW analyst told Reuters that "unless the economy just craters, the bank portion of TARP will be profitable." In other words, the bank bailout was less of a bailout than a loan that's been unexpectedly repaid.
Of course, one reason for the relatively rapid repayment is that beneficiaries of the Capital Purchase Program had to adhere to Treasury's strict executive-compensation rules, which prevented bankers from paying themselves more than $500,000. Paying back taxpayers allowed them to go back to their previous multimillion-dollar salaries.