Nearly a year after the federal rescue of the nation’s biggest banks, taxpayers have begun seeing profits from the hundreds of billions of dollars in aid that many critics thought might never be seen again. The profits, collected from eight of the biggest banks that have fully repaid their obligations to the government, come to about $4 billion, or the equivalent of about 15 percent annually, according to calculations compiled for The New York Times.
These early returns are by no means a full accounting of the huge financial rescue undertaken by the federal government last year to stabilize teetering banks and other companies. ...But the mere hint of bailout profits for the nearly year-old Troubled Asset Relief Program has been received as a welcome surprise. It has also spurred hopes that the government could soon get out of the banking business...
American taxpayers were told they would eventually make a modest return from these investments, including a 5 percent quarterly dividend on the banks’ preferred shares and warrants to buy stock in the banks at a set price over 10 years. But critics at the time warned that taxpayers might not see any profits, and that it could take years for the banks to repay the loans...
So far, that experiment is more than paying off. The government has taken profits of about $1.4 billion on its investment in Goldman Sachs, $1.3 billion on Morgan Stanley and $414 million on American Express. The five other banks that repaid the government — Northern Trust, Bank of New York Mellon, State Street, U.S. Bancorp and BB&T — each brought in $100 million to $334 million in profit...The figure does not include the roughly $35 million the government has earned from 14 smaller banks that have paid back their loans...[T]he real profit came as banks were permitted to buy back the so-called warrants, whose low fixed price provided a windfall for the government as the shares of the companies soared...[But] neither [the troubled Bank of American or Citigroup] is ready to repay its bailout money anytime soon, even though the banks’ stock prices have surged in the last month, leaving the government sitting on paper profits of about $18 billion between them.Despite the early proceeds from the bailout program, a debate remains over whether the government could have done even better with its bank investments...
Of course, many finance experts suggest that the comparison is academic at best, because there is no way to know what might have become of the banks or the financial system as a whole had the government not acted. “Taxpayers should heave a sigh of relief that the investment in the banks protected them from even more catastrophic losses from more bank failures,” said Aswath Damodaran, a finance professor at the Stern School of Business at New York University.
---"As Banks Repay Bailout Money, US Sees a Profit," by Eric Dash, The New York Times (8.30.09)
This is good news, of course. For some of us, it was expected news. We felt we had listened to and placed our confidence in the right people, the right information, analysis and risk handicapping. But because of entrenched partisan politics, some uninformed or misinformed viewpoints and, in all fairness, some substantial unkowns, a lot of people insisted on considering seriously only the worst-case possibility: failure.I know there is still a way to go. Bank of America and Citigroup still have significant challenges on their balance sheets, notwithstanding the increasing confidence expressed by the market's run up in their share price. And, contrary to the NYT article, above, the AP today reported that B of A is nevertheless discussing repaying as much as $20 billion of the $45 billion it borrowed. The number of people who expect them to fail must surely be dwindling. And, as the NYT item notes, the US government already has an $18 billion paper profit in the loans made to them.
There are also folks out there still wringing their hands over AIG, the Macs, and the auto makers. They're not out of the woods, for sure, but I am not very concerned for the eventual repayment of those loans (plus profit), either. And now, maybe some folks can get past the partisan misinformation that Obama wanted any part of nationalizing banks. Like Bush, he wanted government to save the banks, not own them. So, I am heartened at the way it is all unfolding, even if it is what I expected.
Many folks continue to embrace those most pessimistic, even cynical assessments. But in addition to the opinions and confidence of Bernanke, Paulsen, Geithner and other informed, credible voices, there were clarifying, perspective-giving pieces on the bailout like, "What’s the tab for the bailout?" There were also articles on the national deficit clarifying that most of the budget deficit is carried forward from the Bush years and his policies, and much less is related to Obama's initiatives. One I found helpful was, "America's Sea of Red Ink Was Years in the Making," although some questioned it, and I recognize that that some future costs of Bush initiatives continued by Obama--like Iraq, Afghanistan, and TARP--at some point are owned by Obama, too.
But in the end, it's rather academic that most of the deficit is a legacy of Bush policies. It nonetheless falls to Obama to fashion the policies and initiatives that will significantly reduce our budget deficit over the next few years, even as he adds the necessary expense of health care reform, regulatory reform of financial markets, and amelioration of global warming. But as remarkable as it may seem to my more conservative friends--I can almost hear the hoots and hollers--I have considerable confidence that Obama will do just that.
Of course, Obama will need the support and cooperation of congress, and that cannot be taken for granted--not from liberal Democrats, not even from budget-conscious Republicans. That's called political realities these days, and our newer brand of polarized partisan politics is a particularly virulent threat to effective government and the national interest. But if he does not make some progress in reducing the deficit in this term, he will have a tougher campaign for another four years to get it done.
http://www.nytimes.com/2009/08/31/business/economy/31taxpayer.html?_r=1&ref=todayspaper
http://www.msnbc.msn.com/id/30115091
http://www.nytimes.com/2009/06/10/business/economy/10leonhardt.html?_r=1&ref=todayspaper
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