When Congress held its nose in 2008 and approved the Troubled Assets Relief Programme (TARP) to spend up to $700 billion to alleviate panic, the White House reckoned it might end up losing half of that amount. In the end $411 billion was ploughed into financial firms, carmakers and schemes to reduce foreclosures and restart private lending. As of June 7th $308 billion of that had been paid back. The Treasury values the remainder at $130 billion but could quite plausibly garner more. In that case it will turn a cash profit on TARP, although the picture would be worse if the Treasury’s subsidised lending rates are also counted as a cost. The Treasury will take a small loss on Chrysler. It is modestly in the red at current market prices on General Motors and AIG (see table). But those losses are more than made up for by profits on banks and the Federal Reserve’s portfolios of assets from Bear Stearns and AIG. The Fed has also recorded a handsome profit on its emergency-lending programmes to healthy banks, as did the Treasury on its purchases of mortgage-backed securities and, so far, the Federal Deposit Insurance Corporation on bank-loan guarantees.
The big black hole is housing. The Treasury has so far recorded a loss of $138 billion on Fannie Mae and Freddie Mac, the gigantic mortgage agencies it rescued in the summer of 2008. Data from the Congressional Budget Office that include the implicit subsidy yield a cost through 2021 of $365 billion or more. Actual cash outlays will be lower: the White House reckons the agencies will make money in the next decade, cutting the final bill to just $73 billion.
Either way, the direct bill for America’s crisis-era rescues is likely to be remarkably small or to show a profit. America’s experience is not unique: Britain estimates its interventions will eventually earn £3.4 billion ($5.6 billion) and Switzerland reckons it has made a $4.2 billion profit so far on its support for UBS. But it is impressive: the IMF puts the average cost of international bail-outs at 13% of GDP.
The government’s returns largely reflect market illiquidity during the depth of the panic in 2008. This meant that the Treasury and the Fed bought stakes at fire-sale prices. They helped their cause by playing hardball on the prices they paid and by undertaking stress tests and stimulus measures that speeded the healing of the financial system. Replicating such conditions in ordinary times would be impossible
Plenty of assumptions and caveats lurking there, of course (notably on the ability of the housing agencies to return to profit and on the cost of subsidized lending), but worth noting nonetheless.