The myth of a profit from the bailouts

If you listen to news reports and claims by supporters of the bailouts, they’ll tell you that taxpayers are making money off of this massive government intervention in the economy. However, a new report by the government watchdog for TARP suggests that these claims are false:

The United States Treasury concealed $40 billion in likely taxpayer losses on the bailout of the American International Group earlier this month, when it abandoned its usual method for valuing investments, according to a report by the special inspector general for the Troubled Asset Relief Program.

“In our view, this is a significant failure in their transparency,” said Neil M. Barofsky, the inspector general, in an interview on Monday.

In early October, the Treasury issued a report predicting that the taxpayers would ultimately lose just $5 billion on their investment in A.I.G., a remarkable outcome, since the insurance company was extended $182 billion in taxpayer money in the early months of its rescue. The prediction of a modest loss, widely reported as A.I.G., the Federal Reserve and the Treasury rushed to complete an exit plan, contrasted with an earlier prediction by the Treasury that the taxpayers would lose $45 billion.

Last week, Andrew Moylan of National Taxpayers Union also shot down claims of a profit from TARP:

You’ve probably heard about the recent end of the Troubled Asset Relief Program (better known as TARP) ((also known as the outrageously outrageous $700 billion Wall Street Bailout)) (((also known as the “reelection killer”))). Supporters of the program have been crowing about the fact that it appears to have made money, about $25 billion worth over two years. So, all is peachy, right? I mean, we totally saved the economy from complete and total armageddon that would have resulted in approximately 9.8 BILLION people losing their jobs and an unemployment rate of 6,728% and made a PROFIT for our trouble.

Allow me to burst your bubble. That $25 billion profit is a myth, a fiction of Washington accounting (like so many other numbers we hear), and here’s why: because the banks that got bailed out through TARP shuffled all of their bad assets over to Fannie Mae and Freddie Mac, which got their own separate bailout. So, really, it should be no surprise that they’re relatively healthy. They cut out the cancer and passed it right along to Fannie and Freddie. The banks have issues with the current foreclosure mess, but the worst loans are no longer their problem, they’re taxpayers’ problem.

So, just how big is that problem? Well, big. Really big. Their regulator is reporting that they could need another $215 billion worth of cash infusions over the next three years alone just to stay afloat. That’s on top of the $148 billion we’ve already shelled out for them. That means that the top-line cost could rise as high as $363 billion. When you subtract the $25 billion profit from TARP from that number, our bailout of Wall Street from their mortgage mess through Fannie/Freddie could cost $338 billion.

That’s government accounting for you. If it this were a corporation, there would be congressional hearings where CEOs were raked over the coals. But, yes, TARP is going to make a profit because government can do no wrong. [/sarcasm]