Treasury Has Profited from Big Bank Bailouts

The Washington Times (Washington, DC), April 27, 2010 | Go to article overview

Treasury Has Profited from Big Bank Bailouts


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. …

The rest of this article is only available to active members of Questia

Already a member? Log in now.

Notes for this article

Add a new note
If you are trying to select text to create highlights or citations, remember that you must now click or tap on the first word, and then click or tap on the last word.
One moment ...
Default project is now your active project.
Project items

Items saved from this article

This article has been saved
Highlights (0)
Some of your highlights are legacy items.

Highlights saved before July 30, 2012 will not be displayed on their respective source pages.

You can easily re-create the highlights by opening the book page or article, selecting the text, and clicking “Highlight.”

Citations (0)
Some of your citations are legacy items.

Any citation created before July 30, 2012 will labeled as a “Cited page.” New citations will be saved as cited passages, pages or articles.

We also added the ability to view new citations from your projects or the book or article where you created them.

Notes (0)
Bookmarks (0)

You have no saved items from this article

Project items include:
  • Saved book/article
  • Highlights
  • Quotes/citations
  • Notes
  • Bookmarks
Notes
Cite this article

Cited article

Style
Citations are available only to our active members.
Buy instant access to cite pages or passages in MLA, APA and Chicago citation styles.

(Einhorn, 1992, p. 25)

(Einhorn 25)

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

Cited article

Treasury Has Profited from Big Bank Bailouts
Settings

Settings

Typeface
Text size Smaller Larger Reset View mode
Search within

Search within this article

Look up

Look up a word

  • Dictionary
  • Thesaurus
Please submit a word or phrase above.
Print this page

Print this page

Why can't I print more than one page at a time?

Help
Full screen

matching results for page

    Questia reader help

    How to highlight and cite specific passages

    1. Click or tap the first word you want to select.
    2. Click or tap the last word you want to select, and you’ll see everything in between get selected.
    3. You’ll then get a menu of options like creating a highlight or a citation from that passage of text.

    OK, got it!

    Cited passage

    Style
    Citations are available only to our active members.
    Buy instant access to cite pages or passages in MLA, APA and Chicago citation styles.

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn, 1992, p. 25).

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn 25)

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences."1

    1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

    Cited passage

    Thanks for trying Questia!

    Please continue trying out our research tools, but please note, full functionality is available only to our active members.

    Your work will be lost once you leave this Web page.

    Buy instant access to save your work.

    Already a member? Log in now.

    Author Advanced search

    Oops!

    An unknown error has occurred. Please click the button below to reload the page. If the problem persists, please try again in a little while.