Treasury gets some bail-out money back

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.

137 comments Add your comment

Larry Kikkert

March 30th, 2010
7:40 am

Careful Cynthia, someone might mistake your comments as an endorsement of (shudder) something President Bush did.

Jack

March 30th, 2010
7:44 am

I am sorry Cynthia but you need to change todays lead to the Michael Steele voyeur night. The Republican party just expanded its “client” base. We all new the gov’t was going to make out like gang busters on the banks- you have to be drunk or stupid to lose money in banking- Darwin has taken care of the issue.

scott

March 30th, 2010
7:44 am

First, I still disagree that TARP was a good thing but here are a few questions….

1. obama has gone around blaming bush for everything he “inherited,” but taking credit for winning the war in Iraq. What do you think he will do with this one? I guarantee he won’t credit Bush for this $8B windfall.

2. Where is the outrage from the American public regarding a $8B profit the government is taking? It appears as though it is okay for the government to basically win the stock market, but when it comes down to US citizens that do well, they get criticized heavily. And to say that the government “won” playing the stock market isn’t exactly accurate either….it was more like an engineering of the market by the government.

T-Town

March 30th, 2010
7:55 am

Please do not smile too long about the government getting any money back, they’ll soon find something to spend it on.

jt

March 30th, 2010
7:56 am

The 8 billion “profit” still has to go through Charlie Rangels hands first.

We won’t see it.

Scout

March 30th, 2010
8:00 am

You should have highlighted this in red ……………

“The true cost of rescuing the financial system, however, is not yet known.”

It’s all “smoke and mirrors” ……………………..

ctucker

March 30th, 2010
8:15 am

I do endorse “something Bush did.” More than one thing, actually, and TARP is certainly among them.

Joel Edge

March 30th, 2010
8:16 am

That’s a pretty slim reason to crow. As far rescuing the economy. The worst is yet to come, I believe.

Granny Godzilla

March 30th, 2010
8:24 am

Dean Baker at The American Prospect doesn’t have quite the same take on
this…..

“In telling readers that the profit on Citi stock “would amount to a validation of the rescue plan adopted by government officials during the height of the financial panic” the Post is ignoring all the other costs born by the government in allowing Citigroup to be restored to viability. It is also ignoring the enormous handout of taxpayer dollars to some of the richest people in the country. This is not good reporting.”

Road Scholar

March 30th, 2010
8:24 am

Jack: “..you have to be drunk or stupid to lose money in banking- Darwin has taken care of the issue.”

In Ga 37 banks have failed; quite a statement on Ga businessmen and politicians, esp if they sit on the failed bank’s board!

LK: TARP was needed after the reduced or non-existent policing of the banking and securities businesses.

david wayne osedach

March 30th, 2010
8:30 am

The taxpayers on Main St. will gladly take back any monies that were lent out.

Jack

March 30th, 2010
8:37 am

Road Scholar- agreed. What I liked was all the banks that 90%+ real estate developers as board members. Trying not to be too cynical here- it is not worth worrying about as the profit will be “re-distributed”. On a local note watch the Ga 400 toll and the hope scholarship monies start fading to the back. Somewhere in a time capsule I have predicted that eventually there will be those who don’t deserve the ss monies they contributed as they are too wealthy. This stuff will drive you crazy, we still have a fundamentally great country with tremendous opportunites- might as well smile and work hard.

David S

March 30th, 2010
8:46 am

Your ignorance of economics is astonishing.

The economy would not have fallen off a cliff. It would have fallen to exactly where it needed to and will still fall to eventually. The difference is that those responsible would have suffered and the costs would not have been placed on the backs of the american people you claim to care so much about. We would have sorted out the bad debt and would already be on our way to recovery. Instead, we are many more trillions in the hole with worse debt, the poorly managed institutions still in business and plenty of good businesses out of the marketplace.

As for money in the treasury, again your ignorance is amazing. The Federal Reserve authorized the printing of worthless money to bail out the banks. They took their profits, paid off their executives, and now are paying the US back with the same worthless money we gave them. The only difference is that they got the money first so were able to buy up other banks, buy new homes, line their Swiss bank accounts, etc. before paying the Treasury back.

Do something about your ignorance of economics. All of you reading this do yourselves a favor too. Go to mises.org and get an education in Austrian economics. This Keynesian garbage is what got us into this mess.

David S

March 30th, 2010
8:48 am

There is absolutely nothing to praise about the Bush administration or the Obama administration. Especially when it comes to economics.

Ragnar Danneskjöld

March 30th, 2010
8:52 am

I hate to be a contrarian, but I respectfully disagree with the fundamental opinion of our esteemed hostess, “The economy would have fallen right off the cliff if the Bush administration had not put together an enormous bail-out…” Quiet the contrary, I think the meltdown of the mortgage market was not particularly related to the collapse of the larger economy – that was due to actual and foreseeable Congressional policies [end of Bush tax cuts, raising minimum wage, potentiality of higher employment costs from healthcare, potentiality of cap and trade, discussion of curtailing imports.]

Further, I believe the TARP solution had no particular beneficial effect on the economy nor on the particular banks that were supposed to benefit. Certainly Citicorp would have failed, as did FNMA and FHLMC and GM and Chrysler, but I offered a much less expensive government damage-containment program on Wooten’s blog at that time – a simple government-guarantee of extant inter-financial institution obligations.

Best evidence now is that the sole purpose of TARP was to protect favored friends of Hank Paulson and Tim Geithner, mostly-meaning Goldman Sachs. This is the unreported story.

Jack

March 30th, 2010
8:53 am

I will end my day on the blog with a “David S is correct”- I could go into a macro/micro economic diatribe or simply, in an attempt to be cool blogger, the stimulus was nothing more than a financial immodium-

Ragnar Danneskjöld

March 30th, 2010
8:55 am

Dear David S, I posted before reading your notes. You said it better, more efficiently than I. I yield to your words.

kayaker 71

March 30th, 2010
8:58 am

From all reports, according to projected earnings, CITI ia a pretty good buy at $4.31 and should top $8.00 within a year. Penn Central was a great buy in the mid 80s at $3.00 and went to $8.00 and change inside of a year or so.

Jack

March 30th, 2010
9:00 am

sorry- already back in- now we are talkin’- kayaker with the stock tips- I got in at 3.40 or so- why not the safety net is there. maybe we can all meet and focus our collective energy on being an institution too big to fail and then we can really change the world-

Williebkind

March 30th, 2010
9:02 am

8 billion wow, now that leaves only 1192 billion left to make.

Oh

March 30th, 2010
9:13 am

Cynthia, do you ever actually write a full article?

neo-Carlinist

March 30th, 2010
9:16 am

TARP cost less than $100 billion? well shoot, this must be why Wall Street is inflating another bubble. I don’t always agree with Ragnar, but the Oct 2008 “bail out” should have been called GARP (Goldman-Sachs Asset Relief Program). Contrary to the spin, the Feds did not move into the banking industry. In 2008, the Feds assumed the role of insurer (AIG). Had Goldman thrown in with Lehman Brothers instead of AIG (or if Paulson was a former Lehman executive), the feds would have bailed out Lehman and let AIG perish. This was about preventing Goldman Sachs failing, not saving AIG or Lehman. at the very least, the Feds profited from a “short sell” at the expense of long-time Citi investors (and lower level employees). So hold off on the high fives and back-slapping re: Citi, think about the Citi shareholders. The Fed “bought low and sold high” and took the dividends usually earmarked (there’s an interesting word) for individual investors. You’re right, this “deal” has Bush’s finger prints on it. When the dust settled, the US taxpayers netted $8 billion from it’s investment in Citi, while G-S netted about $20 billion (TARP funds) for its “investment” in AIG.

Mike

March 30th, 2010
9:24 am

Ms. Tucker is still so liberal it isn’t funny. Blah, blah, blah.

Russ555

March 30th, 2010
9:25 am

Without the TARP money, the banking system would have collasped. I don’t know if that’s the same as falling off a cliff but it would have been a real disaster. TARP was our only option to keep a recession from turning into a depresson. Bush knew that and so did Obama.
I’m glad we can get any on the money back that we can.

abe lincoln was a republican

March 30th, 2010
9:28 am

i have a couple of questions for the Dems on here.. they’re simple yes or no questions..

1)do you think it is possible for this country to go bankrupt?

2)do you think we should legalize all of the illegal immigrants that are here in this country?

3)do you think President Obama has kept up to his promise to have transparency in his office?
and last..
4)do you worry about prices of goods and services going sky high? ex..a coca-cola costing 2.50, gas prices @ 4.00/gal, power bills doubling, a box of cereal costing 8 or 9 dollars…does this worry you, or do you not think something like that could happen??

and i’m serious about these questions and i’m looking forward to some of your answers..thank you.

Reality

March 30th, 2010
9:43 am

My dear abe….

No one cares about your baited questions. It is obvious that you are not serious about them (as you state). You only care to impose your views in a back door manner. This is an opinion blog – feel free to state your opinion outwrite.

joan

March 30th, 2010
9:47 am

Given that the economy is on track for devastation, I think this administration has done way more harm to this country than any terrorist ever could. We are going to have way more debt in our future, our GDP isn’t growing fast enough to carry the interest rate on our debt in the long term, and it seems like everyone is keeping their head in the sand. Today they were talking about taking away “entitlements” mentioning Medicare and SS. Why don’t they start by taking away the give aways of money to people who have never and won’t work, rather than penalizing people who have worked and saved for their retirement?

Reality

March 30th, 2010
9:49 am

TARP was needed. There is no doubt about that. However, I am extremely disappointed that apparently the banks (and other industries) have not learned their lessons.

All during this recession, prices are falling and people are being laid off of work. And, those workers with a job are getting pay cuts. However, the top executives still give themselves rather large pay raises and bonuses.

Until this ‘upper class’ gets with the program, our Country will continue to struggle with this muddy economy. That top 1% cannot continue to take more and more while unemployement continues to increase.

I don’t care if you are democrat or republican, conservative or liberal, whatever – when a very small group of citizens takes unfair advantage of the majority of the population, something will give. Next thing you know, the CEO of Bank of America will release a press statement: “Let them eat cake!”

A converative Democrat

March 30th, 2010
9:51 am

abe lincoln was a republican, Why did you only want Yes or No answers if you want to have discussion. Your questions are 5 lines long but oly a yes or no answer comes into play.

1. Yes
2. No
3. Yes
4. Yes

I really wish you would have allowed commentary on these answers but i’ll comply with your request.

Reality

March 30th, 2010
9:51 am

joan,

Why do you blame “this administration?” Don’t you realize the 90% of our current federal debt originates from the Bush administrations?

dawg

March 30th, 2010
9:52 am

CT: WITH YOUR BRILLIANT INSIGHT INTO EVERYTHING, HOW IS IT THAT THE MESSIAH DID NOT APPOINT SOLUTION CZAR? THANK YOU FOR ALWAYS SETTING US STRAIGHT.

Reality

March 30th, 2010
9:53 am

dawg – Must you type in all caps? I’m guessing that you represent UGA, so that would explain a lot….

Jack

March 30th, 2010
9:56 am

The Jack is back- Abe has good questions- let’s respond. The country can go bankrupt as countries have in the past. The country most likely carries a negative net worth but for the human and intellectual capital that we have. This, and only this, is the reason other countries continue to buy our debt- note the difference between Iceland and the US. Legalization- oh well – can we attempt to stop ignoring this issue and realize the answer lies somewhere in between “pack them up and ship them out” and “legalize them all now”. This is the 800 lb gorilla. Transperancy- why would any politician bother now that Bush/Cheney and Obama have “succeeded” without it. This should be all of our focus. Inflation- ABSOLUTELY- check out the gas prices. There is a reason that food and energy is not seriously considered the economic “powers” as they are smart enough to know that inflation will kill the remaining jobs. We will all have flat panels and computers but no affordable gas and food- thats ok I suppose.

Russ555

March 30th, 2010
9:58 am

Abe Lincoln was a progressive liberal.

And I agree with yes, no, yes, yes.

stw

March 30th, 2010
9:58 am

Reality: Please explain how Bush is always responsible and the Messiah took a 500B deficit and quadrupled it in 12 months and will double that in 18 more months. Those few percent that you hate (envy) are responsible for jobs and growth– not the cradle to grave government. Don’t bite the hand that feeds you.

joan

March 30th, 2010
10:03 am

Reality, the “upper class” 1% that pays 90% of the taxes in this country simply can’t afford all the free loaders it is expected to support. How do you figure that it should pay for these bums? What right do people have to the money other people have made anyway? And if you go all “crooks in high places” on me, you might want to understand that that is a relatively/statistically insignificant fraction of the top earners. Most are just people who got a good education and worked hard, saved and now see a confiscatory government in their lives.

Bawney Fwank

March 30th, 2010
10:03 am

Now if we could get Democraptic state and federal representatives and congreessman to pay their taxes!

Reality – You’ve drifted very far from reality!
Obama and the Democraps have have already doubled the debt since Bush. When will you stop blaming Bush for the inept actions or lack of proper actions of the Obama and Democraptic controlled Congress.

Me

March 30th, 2010
10:08 am

Reality thy name is Socialism….

Granny Godzilla

March 30th, 2010
10:11 am

stw

500B?

annual deficit or national debt?

and the supplementaries?

DT

March 30th, 2010
10:18 am

The real funny one will be when Christopher (Criminal) Dodd gets up and talks about how his committee’s great actions saved the banking system and ‘made’ the taxpayers money…

It is OK to say that the Bush administration actions were what kept the financial system afloat in this country. They were the ones in when the whole thing started coming apart, so they can get some of the credit and some of the blame…and Congress can get plenty of the latter.

Jack

March 30th, 2010
10:18 am

Oh Granny- I will give you this- a trillion $ war led to a trillion $ oil “issue” which led to a trillion $ financial crisis. What is a few trillion amongst friends. That gave the next administration the “power” to print some money. The cards have been dealt. The US has the best workforce in the world and now it is up to us.

jconservative

March 30th, 2010
10:23 am

David S

You are George W Bush sitting in the Oval Office and the Treasury Secretary calls. The banking system is falling apart and we are on the verge of a second Great Depression. There is no credit available to fuel an economy that runs off of credit. You check with others. The other economists in the administration all say the same thing.

As a courtesy you call McCain and Obama and advise them. They round up the economists & business leaders attached to their campaigns and they discuss the issue. Both McCain and Obama call you and say their people all agree with the TARP concept. So you, George W Bush, approve the TARP and send it to Congress. Congress approves.

Seventeen months later there has not been a depression. Did you, George W Bush, save the US economy? You will never know. There has not been a depression, but maybe there would not have been anyway. And if there had been a depression just how bad would it have been?

Unfortunately there is no job one can have have that will prepare one to be President of the US. The President gathers all available data from all the “experts” and others he trusts and makes a decision.
Gives it his best shot. American presidents have made thousands of decisions; history proves the vast majority have been correct decisions.
That is why the USA is still around.

And so reader, until you have been in that seat lets give the guy a break.

jconservative

March 30th, 2010
10:32 am

Joan – “Why don’t they start by taking away the give aways of money to people who have never and won’t work…”

Joan, can you please give us a number on this group that do not and never have worked. I keep looking, this is your major theme, but I am unable to find a number. And if you cannot give a number of people can you give us a federal expenditure out of the budget. I cannot find that number either.

Thanks.

left wing

March 30th, 2010
10:40 am

Alas, people like David S should remember the axiom, “Those that don’t remember history are doomed to repeat it”.

2 years ago, we were on the verge of a financial collapse the likes of which have not been seen since the Hoover administration. Because of multiple factors (deregulation of the banking industry, the regulators which were in place did not do their jobs, et al) we had a fiscal crisis which threatened to take down the entire banking industry. We had already lost Lehman Brothers, Wachovia, AIG and Citicorp were on life support, and you were willing to just let everything collapse?

If in fact you have an economics background, perhaps you missed class that day on what happened back in the 1920’s & 30’s. In the 20’s, the Cooledge & Hoover administrations, with the help of their republican congress, deregulated the banking and credit markets. The result of which was unregulated and excessive risktaking, which when margin calls were unable to be satisfied, lead the stock market to crash. People lost faith in the banks, which lead to huge “runs” (people taking their money out of the banks) which caused them to fail. By the time Roosevelt took office, apx 34 states (out of 48) had closed their banks.

In fact, the only reason we didn’t have “runs” on the banks this time was because consumers had confidence in the banking structure, due to the F.D.I.C. which Roosevelt established.

In fact, it says something that Hank Paulson, who is by no means a liberal (if he was, he never would have been hired by Bush in the first place) had to rely on Keynesian economics. The right wingers take this “they should have fallen” after the fact, but the fact is, people like Alan Greenspan thought that if the banks collapsed, we would have had another depression.

And for 30 years, ever since Reagan almost quintupled the debt to a Trillion dollars (which back in the ’80s was a lot of money) I and people on the left have complained about all the debt the right racked up, and had to listen to your side saying “we can handle debt as a percentage of GDP”. The vast amount of this debt was accumulated under republican administrations. And the only time your side ever complains about it is when a democrat gets into the White House. Which means you’re nothing but a bunch of hypocrytes.

Ragnar Danneskjöld

March 30th, 2010
10:43 am

Dear jconservative @10:32, “can you please give us a number on this group that do not and never have worked”? If by “work” we mean “something productive,” I would offer the entire staff of the SEC, FNMA, FHLMC, the department of education, the department of energy, and OSHA. These would be a good place to start.

I actually have a possible solution – just pass a law setting all civilian pay scales at the same level as that of the US Marines, and require each department to have fewer employees at each pay grade than the Marines. The Marines are perhaps the most effective US department, so would serve as a good model for all others. (The secret here is that government employees are not dedicated like the Marines, and would abandon their jobs at such low pay scales.)

Jack

March 30th, 2010
10:44 am

May want to meditate a little on the “Reagan debt” I seem to remember the country had a choice- go to “war” with our good Soviet comrades or door #2- out spend them and run them into bankruptcy. The old codger was a fine poker player.

Ragnar Danneskjöld

March 30th, 2010
10:51 am

Dear left wing @ 10:40, your post suggests you are unfamiliar with the causes of the Great Depression. Please allow me to enlighten you:

(1) Congress proposed an anti-trade bill. In anticipation of such a trade killer, the stock market collapsed. Every other nation in the world passed a retailiatory trade bill, and the US finally got around to passing its own, thus sealing the collapse of international trade.

(2) The Hoover administration, to keep the deficit down, raised taxces on the wealthy. Franklin Roosevelt did the same thereafter three times. The wealthy responded by not having the money to hire people.

(3) The Roosevelt administration, horrified by the excesses of the business world, imposed new restrictions on capital formation (securites act of 1933, securities exchange act of 1934) and banking restrictions (Glass-Steagall). The business world responded by lacking funds to start new ventures, and the banking world responded by ceasing lending.

(4) To ensure the population lacked motivation to start up private businesses, the Roosevelt administration passed a whole spectrum of welfare laws.

Fortunately our overlords today are much wiser, and know that in a depression it would be foolish to raise taxes, increase regulatory restrictions, promote welfare subsidies, and injure trading partners.

Granny Godzilla

March 30th, 2010
10:54 am

Jack

Jason Saltoun-Ebin, author of Rethinking Reagan has a different take:

“On the issue of what caused the Soviet Union to collapse, that is another set of issues, and a lot of it had nothing to do with Reagan. The verb I like to say is that he nudged it. But the Soviet Union imploded of its own weight. People often make this argument, the group I would call the triumphalists, they make the argument that Reagan ended the Cold War, Star Wars ended the Cold War, SDI bankrupted the Soviet Union. It is all hogwash. The Soviet Union bankrupted itself. “

left wing

March 30th, 2010
10:55 am

Jack Just how much of the kook-aid (I realized my mis-spelling, then decided it was appropriate that way) have you been drinking? That was simply a way to sell it. We accumulated so much debt because Reagan collapsed the tax structure on the top brackets. We used to have (I believe) 10 brackets which he took down to 4. We simply stopped collecting the revenue on rich people.

It never fails to amaze me how people believe what they’re told, instead of looking into independent resources for themselves. Cutting taxes on rich people doesn’t generate revenue for the government, it means the government collects less revenue. Duh!

I will say that it took Reagan 8 years to quintuple the debt. Daddy bush quadrupled the debt (to 4 Trillion) in only 4 years. What ‘evil empire’ was daddy Bush trying to bankrupt?

Some people are stupid

March 30th, 2010
10:56 am

Ragnar- That sounda like you are advocating some sort of pay restriction. How so not conservative.