The often maligned Wall Street bailout, also known as the TARP, is expected to cost taxpayers $32 billion dollars which is less than projected. The Congressional Budget Office (CBO) issued a report this week indicating that of the $700 billion authorized under the law, $432 was allocated, and at this point, all but $32 billion will be paid back.
According to the CBO, the estimated cost of TARP stems largely from assistance to American International Group (AIG), aid to the automotive industry, and grant programs aimed at avoiding foreclosures. Of this $32 billion dollars, the loss from the AIG bailout accounts for $22 billion. The balance is the cost of the auto bailout and foreclosure assistance.
Taxpayers made a profit on some of “bailout” investments
The CBO estimates that the money loaned or invested to keep banks afloat actually will yield the government a profit due to banks repaying loans with interest. It will also see gains from sales of stock in banks that the government received as part of the bailout.
TARP was actually a program initiated under George Bush and approved by the Congress before Obama became president. However, Republican candidates often make remarks that infer that the Wall Street bailout was an Obama program.
Although the initial money for the auto industry was made by President Bush, the bulk of the loans to the auto industry were made under Obama out of funds paid back by banks under TARP. That assistance resulted in saving the industry and over a million jobs. The government could make additional money from the stock it owns in the auto companies, but the CBO estimates that at the end of the day, the cost could be $19 billion dollars.
As for Wall Street, it went from near collapse in 2008 to record stock values in 2012. The DOW is now over 13,000 and NASDQ and the S & P are at record levels.
TARP enacted to prevent world-wide collapse of financial institutions
Many Americans forget how dire things were in 2008. The American financial instructions were on the verge of collapse. This could have triggered a global collapse. To avoid this, TARP was enacted.
The CBO report stated:
“When the TARP was created, the U.S. financial system was in a precarious condition, and the transactions envisioned and ultimately undertaken engendered substantial financial risk for the federal government. Nevertheless, the net costs directly associated with the TARP, when taken in isolation, have been toward the low end of the range of possible outcomes anticipated when the program was launched—in part because funds invested, loaned, or granted to participating institutions through the Federal Reserve and government programs other than the TARP helped limit those costs.”
No one wants to lose $32 billion dollars, but think of what the cost would be if TARP were not enacted. A global financial collapse would have resulted in a depression far worse than the recession that resulted from Wall Street abuses in the last decade.
The same is true about the Stimulus. Were it not for the stimulus, the recession would have been worse, unemployment would have been higher, and the recovery would not have started to occur yet. The economy is trending up.
What we need to do is to make sure the things that led to the last recession are never allowed to happen again. We got of easy this time compared to what it could have been.
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