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Keeping tabs on the bailout
Workers arrive at insurance company AIG in London, England. Sure, AIG's rescue turned a profit, but what about the rest of the bailouts?
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CORRECTION: The original version of this story incorrectly identified the government bailout program known as TARP. It is the “Troubled Asset Relief Program.” The text has been corrected.
As of this morning, the federal government no longer owns any part of the American International Group (AIG), the big insurance company that was bailed out back when bailouts were the thing, in 2008.
$182 billion was the final payment. It was the single largest investment the government made.
Today, the Treasury Department said it has made that money back -- and then some: $22 billion in profit on the sale of AIG stock.
“I think we should pop the Champagne bottles,” says Stephen Davidoff, a law professor at The Ohio State University, noting that, in 2008, no one was talking about turning a profit on these bailouts, many of which were essentially no-interest loans. “We’ve done much better than people thought we would.”
AIG was part of the Troubled Asset Relief Program (TARP). According to Michael Barr, a former Assistant Treasury Secretary, taxpayers spent about $418 billion, bailing out companies, like AIG, Citigroup and Goldman Sachs.
“More than 90 percent of that has been returned to the taxpayer,” he adds. Roughly $380 billion.
The Treasury Department won’t say how much all the government bailouts cost. It does says it expects to make a profit on TARP, or at least break even.
But Barr, for one, is not breaking out that Champagne. At least not yet.
“It doesn’t mean that we’re out of the woods,” he says. “There’s still lots of investments out there in Fannie Mae and Freddie Mac.”
Taxpayers have spent nearly $200 billion propping up the two mortgage giants, and we’re likely to lose money on that. As we go down our bailout scorecard, Davidoff suggests we keep an eye on a few other investments as well.
“The automakers, the auto-finance companies have not done great,” he says.
We got out of Chrysler last year, but we lost more than a billion dollars, and we’re still part-owners of GM and Ally Financial.
David,
You ended the article with a comment about Fannie and Freddie not repaying the government. That does not ring true. One way to tell the story of those firms is that the government has mandated a Dividend and that the only reason they borrow money is to pay the government that dividend! Check out their last few quarters borrowing amounts (millions) versus dividends paid to the government (billions).
Here's more from WSJ:
By NICK TIMIRAOS
For the first time since the financial crisis, Fannie Mae FNMA +1.84% and Freddie Mac FMCC +0.33% are showing glimmers of profitability. But the two mortgage behemoths still ask the Treasury Department every quarter for billions of dollars in cash, most of it going right back out the door to pay dividends to the same U.S. agency.
The requirement that both companies pay a 10% dividend on preferred shares—which the U.S. government receives for its infusions after taking over Fannie and Freddie in 2008—costs them about $15 billion a year at the current rate. In the last two quarters, the firms have paid $7.5 billion in total dividend payments, while receiving injections of $5.7 billion to help keep them in business.
The dividends could force Fannie Mae and Freddie Mac to keep asking the Treasury Department for more money even after the companies get back into the black, helped by lower losses on mortgages and profits from newer loans. U.S. officials have said those payments are an appropriate way to repay taxpayers.
Fannie Mae's fourth-quarter income of $73 million, announced Thursday, was the company's first profitable quarter in 3½ years. The bottom line doesn't count $2.2 billion in payments that Fannie Mae had to make to the U.S. government, which was asked to pump an additional $2.6 billion into Fannie Mae.
Freddie Mac, which had a loss of $113 million in the latest quarter, paid $1.1 billion in dividends to taxpayers and asked for $500 million, partly to cover the dividend payment.
Company executives and outside groups such as the National Association of Realtors are prodding Treasury officials to reduce the size of the dividend to 5%, or the same percentage that U.S. banks paid in return for aid under the Troubled Asset Relief Program.
New loans are expected to "pay returns for many years, and they ought to find their way to taxpayers," Fannie Mae Chief Executive Michael Williams said in an interview. "The question is: How does the government want to recoup their investment?"
In a letter to Treasury Secretary Timothy Geithner, the National Association of Realtors said the current dividend payments are exacerbating losses at Fannie and Freddie, which in turn has prompted the two firms to further restrict their lending standards. Mr. Geithner is expected to testify before a House panel Tuesday morning.
Some mortgage-industry analysts contend that the dividend is so high that it runs at odds with the U.S. government's stated goal of conservatorship, the legal process that put Fannie Mae and Freddie Mac under control of the Treasury Department and is designed to conserve their assets. The government also got warrants to buy as much as 79.9% of each company's common shares.
Peel that onion!
The truth is out there!
