Bailout profit not adding up
To start, it's pointless to assess the damage to U.S. taxpayers on the basis of eight of the healthiest banks to receive government aid. America's two most troubled major banks, Citigroup and Bank of America, have yet to repay their bailout funds, and further losses in their portfolios of dubious assets might easily wipe out the ballyhooed $4 billion profit. And there are another 633 U.S. banks that owe the federal government a collective $134.2 billion, with no sense of how much of that will be repaid, either.
What we do know, from a June estimate by Ethisphere, a think-tank that monitors the controversial $700 billion federal Troubled Asset Relief Program launched last October, is that TARP
remains $148 billion in the hole.
And TARP is only part of the myriad ways that Washington rushed to the banks' rescue.
There are the trillions of dollars' worth of suspect mortgage-backed securities, many of them notorious "subprime" loans to uncredit-worthy borrowers,
that the Fed has bought and taken off the books of otherwise doomed lenders. The U.S. Treasury Department has set aside another $30 billion to induce private-equity firms to buy so-called "toxic assets" from troubled banks.
American taxpayers likely won't ever see again any of the tens of billions of dollars Washington had to spend to effectively nationalize American International Group Inc. (AIG), once the world's largest insurer, which guaranteed subprimes held by scores of global banks. Had the undercapitalized AIG bought the farm, its collapse would have triggered the failure of lenders from San Francisco to Frankfurt to Tokyo.
Uncle Sam further staved off a meltdown of the global financial system with its $95.6 billion nationalization of the cravenly mismanaged Fannie Mae and Freddie Mac, the hybrid private-public firms that are the ultimate buyers of half of all U.S. residential mortgages.
So why was the Fed so eager to feed this trifling good news about the eight recovered banks to the media?
Because the bank bailout was sold to a hostile Congress last year by then-treasury secretary Henry Paulson as an investment in rescuing the financial system, with the emergency funds eventually to be recouped.
