Even if the U.S. Treasury ending up losing billions on the bank bail-out, the government should have taken the risk. The economy would have fallen right off the cliff if the Bush administration had not put together an enormous bail-out (known as TARP) in the fall of 2008.
But, in a bit of good news in a still-bleak economy, it looks at though the bail-out will cost taxpayers less than originally believed. Treasury has just announced its intention to sell its Citi stock, from which it expects to make an $8 billion profit:
The Obama administration is making final preparations to sell its stake in the New York bank. . At today’s prices, the sale would net more than $8 billion, by far the largest profit returned from any firm that accepted bailout funds, and the transaction would be the second-largest stock sale in history.
On paper, the government’s 27 percent stake has grown in value to $33 billion. The size of the deal in the works has Wall Street buzzing. Only the stock offering by Japan’s Nippon Telegraph and Telephone, which raised $36.8 billion in 1987, was larger, according to Thomson Reuters.
The windfall expected from the stock sale would amount to a validation of the rescue plan adopted by government officials during the height of the financial panic, when the banking system neared the brink of collapse. A year ago, Citigroup’s stock hovered around a dollar a share, and the bank’s future seemed in doubt. On Friday, the stock closed at $4.31.
If the sale proceeds as planned, Citigroup would be able to cut nearly all of its ties to the $700 billion Troubled Assets Relief Program. Meanwhile, the administration could highlight the profit generated from the rescue of big banks. . .
The true cost of rescuing the financial system, however, is not yet known. Senior Treasury officials have said that they expect the ultimate cost of TARP to be less than $100 billion. Besides TARP programs, mortgage financiers Fannie Mae and Freddie Mac have received more than $125 billion in federal aid. There is no indication that either firm will be able to repay the government anytime soon.
Yet many economists say that rescuing large Wall Street firms has come at a much lower cost than expected.