Last week the Congressional Budget Office (CBO) released its congressionally required annual report on the Troubled Asset Relief Program (TARP). While the report has attracted little press coverage, it does offer some interesting information. The bottom line is that the CBO estimates that TARP ultimately will cost the federal government an estimated $27 billion — fully $6 billion more than the estimate presented in the 2013 report. To date, $423 billion of the $700 billion which Congress authorized has been issued. CBO expects that an additional $15 billion will be issued, all of which will go to support mortgage borrowers through programs such as the Home Affordable Modification Program (HAMP).
The most fascinating statistic in the report is that the funds lent to banks are the only ones that the federal government profited from. Every other group of recipients resulted in losses to the federal government. Those other groups are: AIG (American International Group Inc.); the auto industry manufacturers and captive financers; and direct consumer programs, such as the aforementioned HAMP. Stunningly, the programs aimed at consumers to modify mortgages have resulted in a default rate of 29 percent. Of the 1.3 million mortgages held by homeowners granted a modification, 375,000 subsequently were canceled, primarily due to homeowners’ later defaulting.
General Motors Company, Chrysler Group LLC and their captive finance subsidiaries were lent $80 billion, of which $6 billion remains unpaid. CBO estimates the cost to the federal government at $14 billion for the assistance, due to the sale of debt, equity and preferred shares in the post-bankruptcy companies. The government invested $61 billion in these securities and sold them for $47 billion.
In the case of AIG — the giant insurance conglomerate — the government invested through a variety of means a total of $68 billion, of which it collected only $54 billion, resulting in another $14 billion loss. The losses occurred on the sale of stock, so AIG claims it has paid back all of its obligations. While AIG did pay back the debt portion, taxpayers still lost $14 billion on the sale of the stock invested in the company to save it from imminent failure. AIG obviously feels no responsibility to pay back taxpayers for their generosity. The auto companies obviously feel no responsibility to pay back taxpayers for their generosity, either.
While this report could be construed to absolve the banking industry from the onslaught of criticism leveled at it by the national media and the Obama administration, I am glad it has received little coverage. Banks remain an easy target, after years of being errantly maligned by the national media to the point that most individuals believe that banks were the root of this evil. My fear is that if this report had been picked up by the national media, the headline would have been misconstrued to: “Bank Bailout to Cost Taxpayers $27 Billion.”
These are the circumstances we find ourselves in today. Yet anyone who reads the entire report, which is only eight pages long, can clearly see that banks were the only recipients of TARP to fully pay it back, and then some. While bankers would love nothing more than to be vindicated of financial crisis allegations, and the facts outlined above would go a long way toward that goal, I doubt that any banker truly expects it to happen … except by rebuilding their sterling reputations over a long, long period of time.