The end is finally in sight.
I’m talking about the Troubled Asset Relief Program, the long-maligned federal bailout program better known as TARP. The program that used about $500 billion of taxpayer money to prop up private industry is winding down.
Just this week, Treasury officials struck a deal with General Motors Co. to sell a big chunk of the GM shares owned by taxpayers. The Treasury plans to sell its remaining 300 million GM shares over the next year or so.
And last week, the Treasury disclosed the final sale of its remaining shares of insurance giant AIG. The government’s AIG commitment, which once looked like a scary money pit, actually turned a modest profit.
Other TARP investments remain on the government’s books. Notably, the Treasury still owns an interest in more than 200 American banks.
But most of the big-money obligations have been repaid, sold, or written off. A year from now, we’ll be very close to closing the books on TARP.
So what was the TARP experience, after all the financial anxiety and political arguments over stuffing so much public money into a gaping hole in the economy four years ago?
You can argue forever about moral hazard, the dangers of a system that protects businesses and people who take big financial risks and then fail. TARP didn’t prompt banks to write many more loans and did little to stabilize the housing market. Government played fast and loose with bankruptcy laws in the midst of the auto industry crisis.
But no one can forget the dire problems America faced in 2007 and 2008 — or deny the fact that TARP helped keep our financial system from falling apart at the seams. It was big, fast, and decisive in the middle of a crisis. Really bad things probably would have happened without it.
The Treasury spent a staggering amount of money on investments that seemed risky at the time. But when those accounts are finally settled, TARP will have lost a little bit of money, or perhaps broken even. Whatever the final cost, it will be short money for what we got in return.
“TARP itself is a qualified success,” says Nariman Behravesh, chief economist at IHS Global Insight in Lexington. “In times of stress, the private sector can’t manage these kinds of large financial workouts. The US in the end will be viewed as having done the right thing. On balance, this was a really good thing.”
The financial results of individual TARP investments — gains and losses — have been all over the map.
Money invested in banks, as a group, have already earned a modest profit if you include interest, dividends, and stock warrants. The Treasury is auctioning off most of its remaining bank investments, but that won’t amount to big dollars.
Big institutions repaid loans quickly and accounted for the bulk of the government’s profit.
Those big banks chafed at business restrictions that came with the money — especially limits on what top managers could be paid.
“The executive pay restrictions had an unintended consequence in that they really encouraged managers at large banks to pay back early and that’s how we made a profit,” said Linus Wilson of the University of Louisiana at Lafayette, who has written extensively on the impact of TARP.
The government will surely lose money on its auto industry investments. GM may end up costing $15 billion. Chrysler was a much smaller loser, costing about $3 billion.
But the biggest surprise in the the TARP portfolio turned out to be AIG. The Treasury and Federal Reserve had committed a combined $182 billion to prop up the insurer and ended up making a profit that works out to about 3 percent a year.
Of course, government officials signed off on other financial crisis management plans above and beyond TARP.
The bailout of mortgage finance giants Fannie Mae and Freddie Mac amounted to $187.5 billion and the final cost will be sky high.
Beyond investments in distressed companies, the Fed has been pumping trillions of dollars into the economy by purchasing securities to keep interest rates low. The numbers are so big they are hard to grasp.
But the impact and cost of TARP is clear by now. The controversial program wasn’t perfect, but it accomplished big things in a crisis and ended up costing peanuts.