The Wall Street Journal headline on the news story that Fifth Third Bank has repaid its TARP receipts is exactly the one that the Treasury would want: "With Fifth Third Out, Banks Have Repaid 99% of TARP."
The headline encapsulates the administration's approach to discussing TARP, namely, framing the issue very narrowly, and adding some accounting chicanery. Banks have not repaid 99 percent of TARP -- not even close. According to ProPublica, as of today TARP is still $123 billion in the red.
It's closer to the truth that banks have repaid 99 percent of the TARP funds that were disbursed to banks, as opposed to automakers or AIG. According to the Treasury, $244 billion of the $245 billion given to banks has been repaid, a number which includes some profits the Treasury realized on the bailouts. This claim, while accurate, is still not helpful in assessing TARP's effectiveness because, as former Congressional Oversight Panel members Pau Atkins, Mark McWatters, and Kenneth Troske argue in the Journal, "TARP was never where the real action was happening. In fact, other Fed and FDIC programs added another $2 trillion of taxpayer money at risk to the 19 stress-tested banks alone, on top of the $1.1 trillion of MBS purchased by the Fed. TARP is but one-eighth of that total." Those numbers do not even include the Fed's near-zero interest rate policy, which has allowed big banks to earn risk-free profits.
In short, the claim that TARP has proved to be a good deal for taxpayers falls apart on inspection. It would be more accurate to say that, while TARP overall has been, so far, a disaster for taxpayers, the costs and risks of the portion of TARP relating to banks have been diversified away to other government programs.
Of course, it apparently cannot be repeated enough that the most damaging aspects of TARP have to do not with dollar costs but with the enormous moral hazard it created. Neil Barofsky, the outgoing Special Inspector General for TARP, explained it well in his testimony today:
"Financial institutions now operate in an environment where size matters.... For executives at such institutions, the government safety net provides the motivation to take greater risks than they otherwise would in search of ever-greater profits."
Credit-rating firms are to giving these "too big to fail" institutions higher ratings based on the government's implied guarantee, Mr. Barofsky said. As a result, he said, lenders "give those institutions access to debt at a price that does not fully account for the risks created by their behavior."
That effective government subsidy, he said, enables big profits and "allows the largest institutions to become even larger relative to the economy while materially disadvantaging smaller banks." [Emphasis added.]
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