By Data Feature
Dennis Seid 6/11/10
Bailout repayments inch higher than outstanding balance
By Jim Puzzanghera
Los Angeles Times
WASHINGTON – The Treasury Department on Friday hailed what it called a milestone in the history of the controversial $700 billion bailout fund – for the first time the amount repaid by banks and other recipients has surpassed the outstanding balance.
In the latest monthly report to Congress on the Troubled Asset Relief Program, or TARP, Treasury officials said repayments had reached $194 billion. That figure tops the $190 billion in bailout money still outstanding. The fund received a big boost in May when the Treasury Department completed its sale of 1.5 billion shares of Citigroup stock it acquired in that bank’s bailout, providing $6.18 billion.
“TARP repayments have continued to exceed expectations, substantially reducing the projected cost of this program to taxpayers,” said Herb Allison, Treasury’s assistant secretary for financial stability. “This milestone is further evidence that TARP is achieving its intended objectives: stabilizing our financial system and laying the groundwork for economic recovery.”
TARP was created by Congress at the height of the financial crisis in 2008 and has been highly controversial from the start. Congress originally rejected the fund, which was proposed by the Bush administration to purchase toxic subprime mortgage securities from banks. It was approved after adding more conditions and congressional oversight.
But then-Treasury Secretary Henry Paulson quickly changed its main use, funneling much of the money into banks to stabilize their financial condition and give them capital to make loans. As the financial crisis eased and the economy has recovered, banks have scrambled to repay the money and get out from under tough executive compensation restrictions.
The Treasury Department also has made money from mandated dividend payments and the sale of stock warrants the government received as part of the investment. Of $205 billion injected into banks, $137 billion has been repaid. In addition, the Treasury has received $23 billion in dividends, interest and other income.
The repayments have helped dramatically reduce the projected TARP losses. In August, the Obama administration estimated losses of $341 billion. That figure was reduced last month to $105.4 billion. No additional TARP money can be spent after October, when the fund expires.
Although the administration has been increasingly optimistic about the eventual losses from the TARP fund, the panel set up by Congress to oversee it has been critical of the taxpayer exposure.
On Thursday, the Congressional Oversight Panel said taxpayers still “remain at risk for severe losses” from the bailout of insurance giant American International Group. Much of the $182 billion committed to AIG comes from the Federal Reserve, but Treasury committed $70 billion of TARP money to save the company from bankruptcy. As of May 31, AIG had received $48 billion of that money.
Some TARP money will never come back. For example, the administration has committed $50 billion to provide cash incentives to banks to modify mortgages of homeowners in danger of foreclosure.
To recover any TARP losses, President Barack Obama has proposed a tax on the 50 largest U.S. financial institutions that would bring in about $9 billion a year over 10 years. Congress is considering the proposal, which is strongly opposed by large banks.