TARP: The Obama administration now reckons it will fail to recoup less than $50 billion from the $700 billion Troubled Asset Relief Program set up in fall 2008. While no small number, it’s far better than the $340 billion of losses expected just over a year ago. But the current TARP estimate will only be a fraction of the whole cost of the bailout.
After all, while the program to invest emergency capital into banks, AIG, Chrysler and General Motors attracted much publicity and controversy, it was hardly the only bailout fund. All in, the U.S. government was prepared to commit some $24 trillion in direct financial support and guarantees, according to the Special Inspector General for TARP.
Much of the money still outstanding under many of these programs may be recovered. Some 40 percent of the $71 billion utilized in the Term Asset-Backed Securities Loan Facility has already been repaid, for example. And with financial institutions more stable, it’s much less likely the Federal Deposit Insurance Corp will be on the hook for any of the remaining $300 billion of bank debt it guaranteed - while earning more than $10 billion in fees.
It’s even possible that AIG and the auto companies will return enough TARP capital to reduce the losses even further. Indeed, it’s a surprise to many that the Treasury has even managed to offload more than half its shares in Citigroup at a 23 percent profit.
But none of that accounts for Fannie Mae and Freddie Mac. To date these two mortgage behemoths have sucked in some $150 billion of other direct government support. Taxpayers are also backstopping their securities portfolios and guarantees, to the tune of almost $6 trillion. Meanwhile, the Federal Reserve held some $165 billion of the two firms’ debt at the end of the second quarter, and by September, along with the Treasury, around $1 trillion of their mortgage-backed securities.
With the housing market stuck with too much supply, a glut of foreclosures to come and mortgages hard to come by, Freddie and Fannie will remain a drain on resources for some time. That should temper any desire to crow about TARP’s shrinking losses.