The Corner

The Real Cost of TARP

When assessing the impact of the Troubled Assets Relief Program, commentators often note that the program didn’t end up costing much to taxpayers. The program, which was created in October 2008 in response to the financial crisis, authorized the use of $700 billion to help stabilize the economy. According to a recent CBO report, the program used $428 billion of the $700 billion — at a net cost to the federal government (read: taxpayers) of $34 billion. That, the Treasury has long argued, should be perceived as a real success considering that the original cost of TARP was projected to be $356 billion before banks started repaying their debt faster than originally planned.

If this sounds too good to be true, that’s because it is. Among other things, a new GAO report shows that nearly half of the banks that have returned their TARP money have paid taxpayers back with money from other taxpayer-funded programs that support banks. My colleague Hester Peirce gives us the highlights from the GAO study:

The GAO found that nearly half of the banks that have returned their TARP money have done so with money from other taxpayer-funded programs that support banks. GAO also found that, as of the end of last year, 130 of the 352 banks that are still in TARP were on the FDIC’s problem bank list, which means they are having such severe problems that they might fail. The remaining TARP banks are less profitable, hold less capital, and hold worse assets than their counterparts that have already left TARP or were never in it. More than forty percent of the remaining banks have failed to make dividend and interest payments. 

This picture of the seamy side of TARP is one that the government would prefer we did not see. GAO called Treasury out for failing to be transparent about the poor state of the remaining TARP banks as compared to other banks. Treasury should heed GAO’s recommendation and come clean about the likelihood that many TARP banks will not pay their money back. Taxpayers who put their money on the line have a right to know whether they should expect to get it back.

The whole thing is here.

Veronique de Rugy — Veronique de Rugy is a senior research fellow at the Mercatus Center at George Mason University.

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