TARP Profits a Myth Reports Inspector General

The Obama administration may tout the bailouts of too big to fail banks and the US auto industries as a success but according to a grim new assessment by the bailout’s watchdog, the US taxpayer funded programs are not and may never be profitable.

“It is a widely held misconception that TARP will make a profit,” writes Special Inspector General Christy Romero at the top of her 327-page report. “The most recent cost estimate for TARP is a loss of $60 billion. Taxpayers are still owed $118.5 billion (including $14 billion written off or otherwise lost).”

The Treasury Department’s has repeatedly claimed that the government will eventually at least break even on the bailout. So far, the government has been repaid about $300 billion of the $414 billion it has paid out to banks, but some of those payments have actually come from other government money the Wall Street Journal reported.

In her report, Romero points out that smaller community banks don’t have easy access to other forms of capital and are struggling to get out of TARP. Dividend payments to the U.S. government under TARP will increase from 5 percent to 9 percent in late 2013, which will make repayment even more difficult for small banks.

TARP has mainly helped the too big to fail banks, which she are now bigger than ever, but have been slow to lend money to help the economy.

On the plus side, the program gave the banks desperately needed cash to keep the financial system afloat. On the downside the costs of TARP are intangible:

“While TARP and other government responses to the financial crisis may have prevented the immediate collapse of our financial and auto-manufacturing industries and improved stability since 2008, the tradeoff is not without profound long-term consequences.” wrote Romero.

The legacies of TARP include “increased moral hazard,” bloated financial giants and episodes of white-collar crime, which Romero says her office “is uncovering and stopping.”

She also warned that the bailouts may have lulled financial regulators, banks and the American public into a false sense of security. The public’s obsession with whether TARP is going to turn a profit for the U.S. government, fed by the Obama administration, is misleading and missing the point entirely:

“Using a microscope to narrowly focus on the profit or loss of TARP risks losing sight of the bigger picture of whether TARP has been successful in meeting its goals and whether lessons learned from the financial crisis have been adequately implemented so that Treasury, banking regulators, and Congress do not find themselves in the position of rushing out another massive bailout of the financial industry in the form of TARP 2.0.”

Romero also wrote that her office has made nearly 100 recommendations to the Treasury Department for helping prevent waste and abuse under TARP, but the Treasury has adopted only about a third of them.


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