In the depths of the financial crisis, investors suffered through a host of ugly acronyms — but none were used with more confusion, fear or mistrust than TARP.
The Troubled Asset Relief Program was labeled a handout to help banks get only bigger at a time when the financial sector should have been shrinking. Free-market proponents claimed it was government interference in the worst way. Voters felt it was more proof that politicians were more interested in doing favors for rich friends than spending taxpayer funds responsibly. Even some banks chafed at the fact they had to take the funds — even if they didn’t want or need them.
It was legislation that seemingly pleased no one. But nearly four years later, almost everyone agrees things would have been significantly worse without TARP. Imperfect as it was, the bailout did its job and prevented a systemic breakdown of the global financial system.
But at what cost? What did TARP do well, and where does it continue to fall short all these years later?
Let’s take a look through some history and some of the latest information to check up on the Troubled Asset Relief Program:
Not Obama’s Idea: Some partisans on the right might forget that the TARP program was born under President George W. Bush and signed into law on Oct. 3, 2008 — a month before voters even went to the ballot box and more than two months before Barack Obama’s inauguration.
Banks Forced to Participate: Believe it or not, some documents revealed that George W. Bush’s man at the U.S. Treasury strong-armed some financial institutions into getting on board. According to reports, the choice that Treasury Secretary Hank Paulson gave banks was simple: Take the funds voluntarily, or the government regulators will force you to take it. The theory was that it would separate “good” banks from “bad” banks if only some took cash out of need and others did not.
Not as Big as Planned: The original financial crisis agreement authorized expenditures of $700 billion, in part because the scope of the bank bailout was difficult to assess in the chaos of 2008. As the dust has settled, only $470.12 billion has been distributed thus far (including for automaker bailouts); Dodd-Frank legislation ensured the limit was reduced so Congress or the Treasury couldn’t play with that original amount.
TARP Is Not Over: Yes, some cash has been repaid. But the quarterly report from the Special Inspector General of TARP this January says everything you need to know: “TARP will continue to exist for years. TARP programs that support the housing market and certain securities markets are scheduled to last until as late as 2017, and the Treasury can spend an additional $51 billion on these programs during those years.”
Massive Mortgage Appropriations in the Works? Perhaps the biggest shock to many is the fact that $45.60 billion has been allocated to “Treasury Housing Programs Under TARP,” that include refinancing help and mortgage forgiveness to some with FHA loans. But of that total, a measly $3.83 billion has been disbursed. Call me a cynic, but it doesn’t seem like Washington to just leave all those billions of dollars untapped …
Realized Losses Are $11.46 Billion: So far, of course. That figure is according to this week’s update from the Treasury and doesn’t include projected losses.
Projected Losses of Around $70 Billion: Believe it or not, that’s significantly better than first thought. In August 2008, before TARP was signed into law, U.S. Treasury estimates projected losses of as much as $341 billion. By late 2009, that number was slashed to just $141 billion. Early this year, those losses were cut to $70 billion.
Total Repaid to Date Is $342.16 Billion: Again, as of Monday. With a total payout of $470.12 billion, that means taxpayers have only been repaid 72.7% of the initial bailout package.
Big Banks Are Not a Monetary Drag: As of this week, the amount of rescue funds allocated to financial institutions worth more than $10 billion (individually) totaled $165.33 billion. Of that, $158.31 was repaid — for an outstanding balance of $4.47 billion after $2.55 billion was written off. And thanks to warrants sold, dividends and other income, the total paid back to the Treasury was $175.02 billion. That means taxpayers made a profit. Whether the government should have provided funds is another question, however, especially considering many surviving financial stocks used the support of the government to gobble up wounded competitors and become even more entrenched.
Automakers Still Are in Hock: Detroit hasn’t been as kind with its TARP repayment. Of $147.53 billion dished out to General Motors (NYSE:GM), GM’s finance arm GMAC (now Ally) and Chrysler, $67.06 billion has been repaid to date. There has been a realized loss of $11.29 billion and write-offs of another $1.6 billion.
The Awesome Size of AIG: The cash dished out for American International Group (NYSE:AIG) was $67.84 billion — or 14.4% of the entire TARP total! About half, or $30.44 billion, still is outstanding with a realized loss so far of $5.52 billion.
Some Banks Repaid in a Matter of Months: Complicating things further was the mandate that all banks, regardless of need, take TARP cash. Of course they were going to pay it back, since they didn’t need it — or even want it. In fact, after much protest, four very healthy regional banks — Signature Bank (NASDAQ:SBNY) of New York; Old National Bancorp (NYSE:ONB) of Evansville, Ind.; Iberiabank (NASDAQ:IBKC) of Lafayette, La.; and Bank of Marin Bancorp (NASDAQ:BMRC) of Novato, Calif. — finally were allowed to repay their TARP funds in March 2009. One of President Obama’s first moves was to allow earlier repayment, since banks obviously were unhappy with the government meddling in their business, and these guys were at the front of the line.
Let’s Not Forget Asset Buying: If you think TARP was all about Bank of America (NYSE:BAC) or GM, think again. The plan distributed $26.52 billion to “credit market programs” that included buying toxic assets (of which just $14.85 has been repaid).
It’s All Public Record: There are a wealth of resources out there for those willing to dig into the data. By far the best sources are primary ones, from the government itself. A Daily TARP Update from the U.S. Treasury gives you the facts straight up, but I also enjoy reading the reports from the Special Inspector General for TARP Funds, also known as SIGTARP. If you don’t trust the Treasury stats or the “nonpartisan” overseer at SIGTARP, however, you then must rely on the wild speculation of hacks in the blogosphere pushing a political agenda. Given that choice, I hope you go to the Feds.
Jeff Reeves is the editor of InvestorPlace.com and the author of “The Frugal Investor’s Guide to Finding Great Stocks.” Write him at [email protected]??.com or follow him on Twitter via @JeffReevesIP. As of this writing, Jeff Reeves did not own a position in any of the aforementioned securities.