Bailout Profits Beat Treasuries

Bloomberg notes that the government’s profits from TARP are running ahead of the yield on U.S. Treasury bonds so far. In other words, the proceeds have covered the expenses:

The government has earned $25.2 billion on its investment of $309 billion in banks and insurance companies, an 8.2 percent return over two years, according to data compiled by Bloomberg. That beat U.S. Treasuries, high-yield savings accounts, money- market funds and certificates of deposit. Investing in the stock market or gold would have paid off better.

When the government first announced its intention to plow funds into the nation’s banks in October 2008 to resuscitate the financial system, many expected it to lose hundreds of billions of dollars. Two years later TARP’s bank and insurance investments have made money, and about two-thirds of the funds have been paid back. Yet Democrats are struggling to turn those gains into political capital, and the indirect costs of propping up banks could have longer-term consequences for the economy.

“From the perspective of the taxpayers getting their money back, TARP has been a great success,” said Todd Petzel, chief investment officer at New York-based Offit Capital Advisors LLC, which has more than $5 billion of assets under management. “But there are other costs as the government made it possible for the banks to pay back TARP. Those costs can turn out to be larger, and their legacy could last longer.”

That’s good news. The problem is that taxpayers could have — and should have — made a much larger profit. Warren Buffett was able to loan money to Goldman Sachs for 10%. That’s twice what the government got.

Posted by on October 20th, 2010 at 1:55 pm


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