Bank Bailouts Close to Breaking Even, GSEs' Projected Price Tag Shrinks

Posted on Sunday, March 20, 2011

When the federal government stepped up with its pockets full of cash to bail out the nation’s floundering financial system nearly three years ago, public outrage was widespread as critics lamented the big bill being passed on to American taxpayers.
Those that opposed the hefty handouts still have their ethical argument against the decision to bail out the big banks, but the fiscal argument is growing faint. Treasury announced this week that over 99 percent of the funds disbursed to banks through the Troubled Asset Relief Program (TARP) have now been recovered.
Approximately $245 billion in TARP money was paid out for programs that provided direct financial support to banks. As of Wednesday, Treasury says taxpayers have gotten back $244 billion through repayments, dividends, and interest.
Treasury currently estimates that bank programs under TARP will ultimately turn a profit of nearly $20 billion. Altogether, officials say financial support for banks, AIG, and the auto industry will result in “little or no cost to taxpayers.”
Instead, the lifetime cost of TARP is likely to be limited to funds disbursed for Treasury’s foreclosure prevention programs, which are not expected to be recovered.
The private sector is making good on its debt obligations to the American taxpayer, but there’s no question that the largest bailout of all was for mortgage giants Fannie Mae and Freddie Mac.
While that tab is in no way shrinking yet – in fact it continues to grow with each passing quarter – Treasury Secretary Timothy Geithner told a group of senators this week that he expects the GSEs to cut the amount they owe to taxpayers by almost half over the next 10 years.
“Treasury estimates show that the net cost of our support for Fannie and Freddie will total approximately $73 billion through 2021,” Geithner testified before the Senate Banking Committee.
That projection is 44 percent lower than the $134 billion the two companies have drawn to stay afloat since they were placed under government conservatorship in September 2008.
“Costs have already begun to decline,” Geithner said, noting that in the third and fourth quarter of 2010, the combined net costs to taxpayers for the GSEs decreased by approximately $2 billion largely as a result of “the recovering housing market and reforms instituted,” he said.
“There is little dispute that the financial crisis was partly the result of fundamental flaws in the housing finance market,” Geithner told lawmakers. “The consequences of those flaws, and the losses Fannie Mae and Freddie Mac have inflicted on taxpayers, make clear that we must build a healthier, more stable market that will work better for American families and our nation’s economy.”
Last month, the administration released a whitepaper describing steps that will be taken to wind down the nation’s two largest mortgage financiers, along with three options for their replacement – all of which significantly scale back the federal government’s role in the mortgage marketplace, and officials say will insulate taxpayers from similar bailouts in the future.
Geithner warned lawmakers, however, that any plan for unseating Fannie and Freddie must proceed with caution so as not to disrupt the still-fragile mortgage marketplace. Officials have indicated that it will take at least five to seven years for full reform.
By: Carrie Bay, DS NEWS

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