A lot of numbers were thrown around in the fall of 2008 as one by one several of the country’s major financial corporations dropped like dominoes. Here’s a small (not all inclusive) recap:
- September 7: Freddie Mac and Fannie Mae were seized by the government with approximately $5 trillion worth of mortgages.
- September 15: Lehman Brothers filed for bankruptcy.
- September 16: The government gave AIG an $85 million emergency loan (followed by another loan of $37.8 billion less than a month later as well as another bailout of $40 billion in November).
And from there, things continued to get worse as home values dropped, the unemployment rate surged, and the government’s purse kept getting deeper and deeper.
Former President Bush signed the Emergency Economic Stabilization Act of 2008 [1] on October 3, 2008, allowing the Treasury up to $700 billion to purchase distressed assets, mortgage-backed securities, and make capital injections into banks through the Troubled Asset Relief Program (TARP). From this new program and the money all ready loaned to institutions, Americans were looking at a potential tab of $800 billion+. Gulp.
Since the fall of 2008, the news has moved on to the next best drama and only tidbits of the TARP have been reported.
Of the $700 billion, how much was given out, and how much has been paid back?
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The Magic Number
The Emergency Economic Stabilization Act of 2008 has actually expired. As of October 3, 2010, no further loans can be made. In all, approximately $387 billion was given out through this program [2].
The total cost of the bailout to American taxpayers was anywhere from $51 billion to $66 billion, depending on if you are talking to the Congressional Budget Office [3], the Treasury Department, or the White House [2]. These numbers also continue to change as the Treasury earns profits from some of its stakes in companies, and as others continue to pay the government back. Â Â Â
Some of the Big Players
- GM: Received $52 billion (only a small portion of this money was considered a loan), and has ‘paid back’ through a 60% stake to the government in the new GM company, $7.1 billion in interest bearing debt, and $2.1 billion of preferred stock [4]. Â
- AIG: Has received $182 billion in total since the financial crisis in 2008. The Treasury has plans to recoup some of this money by converting its $49 billion stake into stocks and selling them.
- Citigroup: Received $45 billion and has repaid $20 billion. The government still owns $25 billion of common stock and announced recently that it plans to sell $2.2 billion of its shares [5].
Money Made by Taxpayers
So how did the government give out so much money in loans and only lose between $51-$66 billion? It’s because they made money on some of the TARP funds. Profits include approximately $13 billion from bank dividends, and $8.2 billion from the sale of preferred stock. And with a 60% stake in GM, and a $49 billion stake in AIG, there is the potential to make back even more money in the coming years.
After researching for and writing this article, I came away surprised at the low cost to American taxpayers compared with the nightmare scenarios proposed two years ago.
With the media and political campaigns touting the $700 billion number so much, I assumed that most of that money was gone, and that we were lucky to get some of it back.
Are you surprised at the actual taxpayer cost?