TARP: Was It Worth It?

The bailout programs that made up the TARP investments will end up costing taxpayers very little, according to a new Congressional Budget Office report:

CBO estimates that the net cost to the federal government of the TARP’s transactions, including the cost of grants for mortgage programs that have not been made yet, will amount to about $24 billion. CBO’s analysis reflects transactions completed, outstanding, and anticipated as of September 17, 2012.

That cost stems largely from assistance to American International Group (AIG), aid to the automotive industry, and grant programs aimed at avoiding home foreclosures; CBO estimates a cost of roughly $51 billion for providing those three types of assistance. But not all of the TARP’s transactions will end up costing the government money. The program’s other transactions with financial institutions will, taken together, yield a net gain to the federal government of about $26 billion, in CBO’s estimation.

Were the risks taken on by taxpayers in 2008 with no guarantee of return worth it? Almost certainly yes. When taken in sum, two of the three largest car companies were saved. That probably allowed the economy to keep tens of thousands of jobs, and more if auto suppliers are taken into account. These people would not have been tax payers, at least for some period, and their unemployment benefits would have cost states and the federal government dearly. There is no way to ever know what would have happened if American International Group Inc. (NYSE: AIG) collapsed, perhaps taking Citigroup Inc. (NYSE: C) and Bank of America Corp. (NYSE: BAC) with it. Analysts claim that AIG had financial relationships with almost every other large banking and insurance company in the world in 2008. If AIG had foundered, the ripple effects might have brought down the global credit structure. The TARP programs, as it turns out, cost American almost nothing, while they kept, at the very least, the worldwide financial system largely intact.

Douglas A. McIntyre