Wednesday, October 6, 2010
The Republicans want to impose a national sales tax on the middle and lower classes to fund a tax cut for the wealthiest 2%. They want to de-regulate Wall Street and would rather see American soldiers die for oil than invest in renewable fuel sources. The Republicans don't care about the average person. They favor the rich, to line their own pockets.
Republicans complain that the bailouts didn't work and cost too much. However, TARP (Troubled Asset Relief Program) has been an enormous success from a policy perspective — it saved the financial system and averted a second Great Depression at a very low price to taxpayers, according to a report just released.
The price to taxpayers of the bailouts and financial rescue of 2008 and 2009 continues to fall sharply. In figures to be released soon, the Treasury Department will report that the final net cost of the TARP is expected to be about $50 billion. Add in expected returns from Treasury's interest in insurance company AIG, and the final net cost will be closer to $30 billion.
The news of the shrunken cost, which comes on the two-year anniversary of the legislation that created TARP, represents a dramatic improvement. A modest recovery in the economy "from a period in which people thought it would be the end of the world" helped reflate assets and markets.
In the fall of 2008, Congress authorized the government to spend up to $700 billion to shore up the quaking financial system, and it is common for critics to refer to TARP as a $700-billion program. But the full amount was never spent.
The TARP had several components. Some components were designed as pure expenditures rather than investments, such as the nearly $30 billion earmarked for the Home Affordable Modification Program (HAMP). Apart from the funds spent on housing, Treasury now doesn't expect to lose money. In the central component of the TARP, the capital purchase program (CPP), Treasury purchased shares of preferred stock in hundreds of banks. Of the $205 billion invested in banks through the CPP, $153 billion has been paid back. With dividends ($16 billion) and the sale of warrants Treasury received ($6.9 billion) bringing in more cash, the program is on a glide path toward break-even. In the TARP Two Year Retrospective, published today, Treasury now projects a profit of $16 billion on the CPP and other programs to aid banks. Two huge wild cards remain.
First, AIG received more than $180 billion in support from Treasury and the Federal Reserve, including $69 billion in TARP funds. AIG last week issued a plan to extricate itself from the various financial relationships it has with the Fed and the Treasury. The centerpiece is a plan to convert Treasury's preferred shares into common stock representing about 92 percent of AIG, and then sell it slowly over time. If it succeeds, Treasury will ultimately see gains of $16 billion on its holdings in AIG.
Second, there's the $81 billion invested in the automobile sector, most of it in General Motors and related entities. Of that, $67 billion remains outstanding, and GM's upcoming initial public offering is likely to make only a small dent. Treasury now expects that it will ultimately lose $17 billion on its efforts to aid the auto industry. "The returns we'll get from our investments in banks and AIG will be more than enough to cover the money we'll lose in autos," said Treasury Secretary Tim Geithner.
These figures likely won't do much to rehabilitate the popular image of TARP. Americans generally regard the program as having been conceived in sin, and attitudes against it have hardened. Through TARP, the government still has a portfolio of $184 billion in "investments" — in banks, car companies, AIG, and vehicles created to purchase toxic assets.
The benefits of TARP, which were sold as a way to get credit flowing again, haven't always been apparent to most Americans. Treasury has been engaged in a campaign to educate the public about the net cost and impact of TARP. But at a time when Wall Street firms are performing well and unemployment remains high, it remains a difficult sell.
The truth is that not all the $700 billion approved was used/spent; the end result will be a PROFIT to the Treasury, and TARP WORKED! It saved our economy from disaster and made the government a profit.