Treasury Has Profited from Big Bank Bailouts

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Byline: Patrice Hill, THE WASHINGTON TIMES

At a time when both parties are competing to crack down the hardest on Wall Street banks, it might come as a surprise to know that the Treasury has been making a tidy profit on most of the government's Wall Street rescue operations.

What few in Congress are disclosing is that the government's non-bank rescues have become the biggest drain on taxpayers, including the burgeoning bailouts of mortgage giants Fannie Mae and Freddie Mac, insurance giant American International Group, and Detroit's General Motors and Chrysler.

All but one of the megabanks that have raised populist ire - including Goldman Sachs, JP Morgan Chase and Bank of America - repaid the government bailout funds long ago, along with interest and dividends that made the deals profitable for the Treasury. Citigroup is the only major bank that has not repaid in full, though it has announced plans to do so.

While many smaller banks still have not repaid their government assistance, industry lobbyists say the much-maligned Troubled Asset Relief Program has proved to be mostly a big win for taxpayers and the economy.

Two-thirds of the TARP investment from banks has already been repaid with a large profit to the taxpayer, said Steve Bartlett, president of the Financial Services Roundtable. TARP was a positive boost to the economy and the government, and taxpayers are seeing a positive return on their investment.

The Federal Reserve reported last week that it had transferred a record $47.4 billion in profits to the Treasury in 2009 from its Wall Street rescue operations - up 50 percent from 2008.

About half of that came from interest that the central bank earned on Fannie Mae and Freddie Mac mortgage bonds it purchased in the past year to support the housing market and keep 30-year mortgage rates near record lows.

The Fed's profits were used to help reduce the government's sky-high budget deficit, but were not enough to offset the huge cost of Fannie and Freddie's taxpayer bailout - which stands at $127 billion and is expected to grow to as much as $400 billion by some estimates.

In an unexpected development, the Fed said it was also on course to earn money on the notorious portfolio of supposedly toxic bonds it acquired from Bear Stearns two years ago to sweeten a merger deal it arranged with JP Morgan Chase.

That deal marked the start of the government's massive Wall Street bailout operations, which burgeoned throughout 2008 as the threat of massive failure in the banking system forced Congress to enact the $700 billion bank bailout fund.

But the mostly untold story is that most of the money was never used, in large part because the program was so unpopular that Wall Street banks - worried about the congressional backlash and pay restrictions attached to the funds - returned their bailout cash and then declined to take part in several programs that the Treasury set up to help unfreeze credit markets.

As a result, a $1 trillion program the Treasury set up to help banks unload their toxic mortgage assets spent only $30 billion, though that was the troubled asset relief part of the bank bailout fund for which TARP got its name.

Another $1 trillion program that the Treasury and Fed set up jointly to help unfreeze securitized loan markets spent only $48 billion. Similarly, thanks to dramatic improvement in the credit markets in the past year, a $333 billion asset guarantee program set up by Treasury, the Fed and Federal Deposit Insurance Corp. was never tapped.

Since the credit programs were barely used and loan securities markets have been rebounding on their own, the Treasury and Fed have been quietly shutting down the programs in recent months. …