The Bailouts 4 Years Later: Were They Worthwhile Investments?

Tuesday, September 11, 2012

Four years after the George W. Bush administration decided the financial crisis required the federal government to bail out the banks that caused it, and three-and-a-half years after the Obama administration opted to bail out failing auto giants General Motors and Chrysler, Americans may wonder whether these were worthwhile investments. The financial balance sheet on the bailouts, compiled by independent non-profit news operation ProPublica, is a mixed bag and tells only part of the story.


The basic numbers are simple enough to recite. On the spending side, the feds paid out a total of $603.8 billion on bailouts: $245.2 billion (40.6%) went to banks and other financial institutions, $187.5 billion (31%) to Fannie Mae and Freddie Mac, $79.7 billion (13.2%) to GM and Chrysler, $67.8 billion (11.2%) to AIG, $18.4 billion (3%) to toxic asset purchases, and $5.1 billion (0.84%) to mortgage modification, small business loans and housing programs.


On the income side, the government has received $406.1 billion on the bailouts: $319.1 billion in refunds from bailed out companies, $65.5 billion in dividends, $10.55 billion in fees and other proceeds, $9.2 billion from sales of stock warrants, and $1.8 billion in interest.


That leaves a net outstanding balance of $197.6 billion. No-one can say for sure how much of that will be recouped by the government in coming years. The stronger the economic recovery is, the better the chances of getting back most or all of it.


The government has already turned a profit of almost $19 billion on its bank investments, because the largest bailout recipients—particularly Citigroup and Bank of America ($45 billion each)—yielded big profits. Although none of the nearly 400 banks still in TARP have net outstanding amounts of more than $1 billion, 162 are behind on their dividend payments to the Treasury Department, and at least 130 are on a secret “problem bank” list kept by regulators. According to the GAO the banks still in TARP are weaker than the more than 300 that have left. It is unlikely that the government will get much out of the 300.


Because the books are still open on many bailout recipients, it is impossible to reach a final judgment on them. GM, for example, has so far paid back $22.9 billion of the $50.7 it received, and the government owns about one-third of its stock, worth about $10 billion. If the government is able to sell its stock for more than that, it would recoup more of its investment.


Of those recipients whose books are closed, 39 have yielded losses, including the $2.3 billion investment in the bank CIT, which declared bankruptcy less than a year after its bailout, and Chrysler, which got $10.7 billion and led to a loss of $1.3 billion for the government. Taxpayers lost $61 million on Central Pacific Financial in Hawaii, which got $135 million even though regulators said it was troubled, after Sen. Daniel Inouye (D-Hawaii), a founder of the bank and owner of much of its stock, intervened on its behalf.


These balance sheet numbers tell only part of the story. The Obama administration argues that the bailouts were critical in limiting the damage of the financial crisis and saving “more than one million American jobs.” Critics like former TARP inspector general Neil Barofsky reply that the bailouts failed to exact reforms, and even preserved the broken too-big-to-fail system that led to the crisis. Furthermore, the Federal Reserve made secret loans and guarantees to large banks worth $7.77 trillion, which the Fed claims have been repaid.

- Matt Bewig


To Learn More:

The Bailout: By The Actual Numbers (by Paul Kiel, ProPublica)

Bailout Tracker: Tracking Every Dollar and Every Recipient (by Paul Kiel and Dan Nguyen, ProPublica)

Wall Street Bailout Cost Reaches $4.6 Trillion; Most from Federal Reserve Loans (by Noel Brinkerhoff, AllGov)


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