Monday, November 29, 2010

TARP Bailout to Only Cost $25B

And that assumes the cost won't continue to drop. The Trouble Asset Relief Program (TARP) continues to be scorned by most people costing many backers their political positions, but ironically it has turned into one of the most successful government programs ever.

Ok, its very possible that the politicians lost their jobs due to the numerous other packages enacted after TARP that weren't nearly as successful. Anybody hear of any benefits from the stimulus package?

Today the Congressional Budget Office (CBO) estimated that the $700B TARP program would only end up costing taxpayers $25B an absurdly low number considering the consternation when it was enacted. Back then lots of focus was on the $700B being a taxpayer cost instead of an investment in the financial system that was about to collapse. In fact, it would've been a lot more successful if the focus hadn't strayed to the weak companies like General Motors (GM) and AIG. Somebody explain to me how GM is back public and the government hasn't collected all its funds?

Regardless TARP clearly was successful and at the time back on 9/26/08 we wrote that it might even turn out to be profitable [The Money Making Bailout ]. Appears that it might come up just short because of the GM and AIG bailouts that clearly strayed from the original plan. More people would've been agreeable to the bailout had they known that it would be close to break even.

The biggest continued negative about it has always been the assumption that it created a moral hazard by keeping banks alive that should've been allowed to fail. That argument just doesn't pass the mustard with us as the financial system was on the verge of bringing down strong companies like Goldman Sachs (GS) and many others.

Everybody seems to forget that all the corrupt mortgage brokers went out of business. Lehman Brothers went bankrupt. Read the stories about the windfall profits made by the firms that gobbled up the assets of Lehman and you'll wonder why even them failing was right. Bear Sterns and Merrill Lynch were bought up at steep discounts. Wachovia and Washington Mutual were forced to accept mergers that basically wiped out fortunes of long term stockholders. AIG got a government bailout but the stockholders suffered mightily. Just about every major CEO of even the banks that did survive has been forced out.

The worst offenders lost jobs and their investors lost tons of money. Without TARP, many a secondary employee would've been without a job and Main Street would've been hurt deeply. As Bill Gross said back then, this was a bailout of Main Street. Wall Street was heavily impacted prior to TARP.


"Clearly, it was not apparent when the TARP was created two years ago that the cost would turn out to be this low," CBO said in its report.

With bailed-out firms returning to health, the government will spend less than previously thought on assistance to insurer AIG and automakers like General Motors, CBO said.

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