GAO Goes After Administration “TARP Made Money” Claim

I don’t know how many times we’ve gone after the “TARP made a profit” bunk, but that topic requires an annoying amount of vigilance (the latest shill was Austan Gooslbee a mere week ago). This story is a messaging version of three card monte: look at the things that don’t involve the big subsidies, such as continued super low interest rates (a massive tax on savers) or QE (the Fed keeps insisting it won’t take credit losses, when it plans to sell its holdings when the economy strengthens, which means when interest rates are higher….which guarantees interest rate losses). Oh, and the “made a profit” claim also implies the government got a good deal, when the warrants were massively underpriced.

The best short form debunking came from Steve Waldman and it cannot be repeated too often:

Suppose my kid’s meth habit got the best of him. He’s needs to come up with $100K quick or his dealer’s gonna whack him. But he’s a good kid, really! Coulda happened to anyone. So I “lend” him the money, even though he has no visible means of support and the sketchiest loan sharks in town wouldn’t give him the time of day. Now I believe in bootstraps and hard work, individualism and self-reliance. So I tell my son. “Son, you are going to pay me back every penny of that loan. You are going to work it off. I have arranged with one of my golf buddies, a guy who owes me a favor or three, a job that pays $200K a year. You’d better show up every day at 9 a.m. and sit behind that desk, and get me back my money!” And he does! After a year, he’s made me whole. What a good kid.

No bail out, right? He paid me back every penny! Worked it off!

Bullshit. The opportunity I provided him, the $200K job that he would not have received without my intercession, was a huge grant. On the open market, if I were to accept bribes from the highest bidder to wangle the job from my friend, that opportunity would be worth more than the $100K advanced. I paid my son’s loan with my own money. I just obscured the cash flows, so my son and I can pretend and sustain our mutual self-regard and our righteous disdain for the moochers and the hippies and the riff-raff.

But now, we have the GAO, in bureaucratese, going after Treasury for dubious public presentation of TARP projected results. In simple form, Treasury cherry picks. It includes programs which are successful and excludes costs of ones that are iffy, like AIG. Here is the key section:

Although Treasury regularly reports on the cost of TARP programs and has enhanced such reporting over time, GAO’s analysis of Treasury press releases about specific programs indicate that information about estimated lifetime costs and income are included only when programs are expected to result in lifetime income. For example, Treasury issued a press release for its bank investment programs, including CPP [Capital Purchase Program], and noted that the programs would result in lifetime income, or profit. However, press releases for investments in AIG, a program that is anticipated to result in a lifetime cost to Treasury, did not include program-specific cost information. Although press releases for programs expected to result in a cost to Treasury provide useful transaction information, they exclude lifetime, program-specific cost estimates.

The GAO also recognizes that there is a risk to rescuing meth addicts and wishes that could be acknowledged too:

While Treasury can measure and report direct costs, indirect costs associated with the moral hazard created by the government’s intervention in the private sector are more difficult to measure and assess.

It’s sad to see our prejudices confirmed yet again, that it is best to assume the Administration is lying until proven otherwise.

Print Friendly, PDF & Email


  1. Finance Addict

    I also noted with interest the huge amounts paid to financial service providers and contractors who have various roles on these programs. Fannie and Freddie are making out like bandits and the costs are rising by leaps and bounds year-over-year.

    In my post I discuss at least one case where it looks an awful lot like there may be a link between who made campaign contributions and who got the contract to provide services:

  2. jake chase

    Nothing succeeds like propaganda. In a democracy it remains the only truly effective weapon. The only antidote is knowledge, and most people have given up the effort.

    1. nowhereman

      So true it hurts.
      In the present culture, “knowledge” has less value than the latest iphone app, or what Charlie Sheen is up to.

    2. Paul Jurczak

      Couldn’t agree more, but thinking is hard. Hard thinking is even harder. Barely anyone is willing to do it anymore.

  3. Conscience of a Conservative

    In capitalism when after the stock holders get wiped out the bond holders are (according to the text book rules) next in line, but we live in a country where the rules are being rewritten, where tax payers are injected into the loss waterfall, at least with regards to the banks. We saw this thinking again when William Dudley in an FT interview said mortgage bond investors and tax payers should take the hit for loan mods and not the banks that created and packaged the dodgy loans.

    1. Jack M.Hoff

      I can sure see why bond investors should take the hit, but I also fail to see why taxpayers should. The investors (or their proxies) freely bought the financial products without duress. Sure you could argue they were sold fraudulent products, but then if they didn’t do due diligence, too fucking bad. That’s what its going to take to reform the whole sordid affair, is people refusing to take part in it. The only way they’ll refuse is if they indeed lose their asses. Getting the taxpayers involved just creates an insurance fund against losses for those investors (bond holders) and nothing changes. Pure and simple, no financial product should have a guarantee. That just distorts reality.

      1. liberal

        Agreed. While I’d rather something was clawed back from evil bank executives, corrupt mortgage brokers, etc, and that was used to lessen the burden on bondholders, there’s no reason at all why _taxpayers_ should bear some of the bondholders loss.

    1. Pitchfork

      Yep, they’re still lyin’. Whodathunk?

      $121B still not paid back, but I guess we “made money” anyway somehow. Never mind that 121B dwarfs the measly 40B in interest income and income from the sale of warrants. And never mind that just the bank/AIG portion of TARP still has 67B in funds not paid back. 40 is more than 67, right?

    2. OM_2

      IMHO this link abobe is a much better shot at debunking than the getting-the-debtor-a-good-job example in the post. People may think that bailing out the banks and them paying back the loan sounds fairly reasonable, even knowing the payback was rigged.

      Still, even this link above does fall short. Don’t want to post it again, but my post (below, I think) gives what I think are better examples.

      Why are there no better examples or statements after all this time?

  4. TK421

    GAO hit by “accidental” drone strike. Film at eleven.

    Not only did it not make a profit, but the Troubled Asset Relief Program didn’t even relieve the banks of all their troubled assets. So it was a total failure.

  5. ep3

    Yves, in regards to Steve Waldman’s example, I see that happen all the time. Parents have become acclimated to building contacts and connections for the purpose of receiving benefits later on.

  6. steelhead23

    I remain a tad confused. If I recall correctly, the biggest portion of the bailout was the Fed’s purchase (illegal in my opinion) of a mountain of CDOs backstopped by AIG to prevent the CDS implosion. As those CDOs were ultimately supported by liar loans and the like, their value simply has to have fallen, substantially. I would like to see an audit of the entire Maiden Lane portfolio. I’d bet that the losses to the Fed, and thus the U.S. dollar, are in the hundreds of billions. To top this off, I suspect that the servicers are foreclosing on hapless homeowners whose debt is ultimately held by the Fed – and the Fed and Maiden Lane will see little of the proceeds. Sadly, in the U.S., crime does pay.

    1. OM_2

      Maybe I’m not the only one that got thrown off by the Fed’s vs Bloomberg exchange and this kind of fact check example.

      What is needed is a straight forward list of all the bank bailouts. It should be _hard dollars_ cost to taxpayers, as much as possible, not soft-opportunity costs, unless absolutely necessary.

      For examples, Bloomberg reported the banks could have made about 13B off some Fed loans. This is too low — it doesn’t have enought impact. Bloomberg and the Fed disagreed, with the Fed saying a maximum of 1.4T in loans at any one time and Bloomberg came up with 7-9T, or some such number. Maybe that was total loans, including rollovers. Right now the waters are too muddy to know.

      Now what we need is actual _hard dollar_ costs to the taxpayer. Did the Fed _buy_ bad assets from the banks, outside of TARP? Another commenter asked about Maiden Lane.

      Up to now maybe we could say it was too obscure to figure, and there have been a lot of numbers bandied about. Something definite and credible is needed, For example:

      1. The banks borrowed xxxx from TARP at xxxx% when the market rate was xxxxx%+xxx. That was a direct subsidy of $xx,xxx,xxx,xxx.

      2. Savers have gotten only 1% on their savings. If the banks had not been able to borrow at 0% from the Fed, savers would have been paid 3%. This amounts to $xx,xxx,xxx,xxx transfered from savers to the banks.

      3. The banks borrow from the Fed at 0%, and then lend back to the Treasury at x%. (If true — think it may be a myth). This is a taxpayer subsidy to the banks of $xxxx per year.

      4. The Fed/or Treasury _bought_ $xxx,xxx,xxx,xxx assets from the banks at 100c on the dollar. These assest were worth 10c on the dollar on the open market. This was a gift to the banks of $xxx,xxx,xxx,xxx.


      See, not sure why after all this time, such a list does not exist — it makes it much easier for people to say ‘it was all paid back.’

  7. Norman

    This may be a bit off key here, but the thought occurred to me while reading this, of that new ability the “O” signed for Christmas. The one that gives the military the option to arrest American[s] for terrorism, real or perceived. Could the financial shenanigans past, be the same thing? After all, the citizens of this country, military members included, have been terrorized by the T.B.T.F., the Real estate people knowingly in the defrauding of, as well as the so called brightest of the bright too, oh, lets not forget those other participants in the looting of the Treasury. Such an easy way to dispose of the perp[s, falling into that “black hole”, only surfacing when they remit in full, the ill gotten gains they stole?

  8. Doug Terpstra

    Dean Baker weighs in on this, noting the opportunity costs in lost homes, lost jobs, lost production etc. not factored into treasury propaganda:

    “Wall Street’s greatest heist: the Tarp”

    “Now, the same crew that tapped our pockets two years ago is eagerly pitching the line that their bailout was good for us. It may be the case that the history books are written by the winners, but that doesn’t prevent the rest of us from telling the truth.”


    “We are also supposed to feel good that the vast majority of the Tarp money was repaid. This is another effort to prey on the public’s ignorance. Had it not been for the bailout, most of the major centre banks would have been wiped out. This would have destroyed the fortunes of their shareholders, many of their creditors, and their top executives. This would have been a massive redistribution to the rest of society – their loss is our gain.”


    “It is important to remember that the economy would be no less productive following the demise of these Wall Street giants. The only economic fact that would have been different is that the Wall Street crew would have lost claims to hundreds of billions of dollars of the economy’s output each year and trillions of dollars of wealth. That money would, instead, be available for the rest of society. The fact that they have lost the claim to wealth from their stock and bond holdings makes all the rest of us richer, once the economy is again operating near normal levels of output.

    “Instead, we have the same Wall Street crew calling the shots, doing business pretty much as they always did. The rest of us are sitting here dealing with wreckage of their recklessness: 9.6% unemployment and the loss of much of the middle class’s savings in their homes and their retirement accounts.

    “And the lackeys of the Wall Street crew are telling us that we should be thankful that we didn’t have a second Great Depression. Maybe we don’t have the power to keep the bankers from picking our pockets, but we don’t have to believe their lies.

  9. Susan the other

    Noticed an article that the US AG (that would be the missing-in-action Holder) and the OCC are reaching out to the second tier banks to get them on the AG settlement train. If the OCC and the Fed can reach out to the smaller banks, why can’t they just cut the big ones off. Kill them. Did they have to infuse them with TARP money so that when they took them over it would look like it wasn’t such a disaster? And let us not forget there is more to this story of bailing out banks than meets the press. Chris Cook today gave us an inkling of the deep distress in the investment banks and futures-commodities market and the dark inventory they have created. What a joke. There is so much more than mortgage malfeasance that needs to be reconciled in this credit-bubbled world. It is almost as if the MBS-TARP agit-prop is a red herring.

  10. Justicia

    “prejudices” confirmed? Prejudice is irrational bias. Nothing irrational about your suspicion of Treasury’s propaganda — which GAO now confirms is well-founded.

Comments are closed.