San Diego Union-Tribune Editorial

TARP profits

Outcome still murky, but there are promising signs

September 8, 2009

Nearly a year ago, as the government rushed to pump hundreds of billions of dollars into the nation’s financial system, then-Treasury Secretary Henry Paulson and a few others suggested that the frantic effort to stave off a global collapse could actually turn out to be profitable investment for U.S. taxpayers.

Few bought that idea.

But if you think back to those anxious days, when there was a very real chance that a second Great Depression loomed, profit was hardly a primary concern. The key issue was stabilizing the nation’s teetering banks and preventing a catastrophic worldwide meltdown.

That crucial mission appears to have been accomplished, and that by itself is of incalculable value when considering the dislocation and suffering that would have come from a true depression.

But now comes word that in addition to staving off collapse, the Troubled Asset Relief Program, commonly called TARP, may be generating a return to the U.S. Treasury, just as Paulson predicted.

The New York Times estimates that the return from just eight of the largest banks that have now repaid their loans to the government and bought back the warrants they issued as additional security amounts to 15 percent on an annualized basis. Other institutions, large and small, have paid back part or all of their obligations, generating further profit.

And potential additional profits are on the horizon. For example, the treasury is currently owed $6.2 billion in interest from banks that have yet to repay their TARP funds.

None of this is to say that the entire $700 million TARP will turn out to be profitable. In fact, it almost certainly won’t, what with the government still holding vast and precarious stakes in companies such as General Motors, Chrysler, American International Group, Freddie Mac and Fannie Mae.

And, the government’s stakes in giants Citigroup and Bank of America, which currently are worth about $18 billion in combined paper profits as the banks’ shares have soared, are hardly secure. Neither institution has repaid its bailout and both hold large chunks of potentially “toxicâ€