To understand what has transpired in the four years since TARP was signed into law, a little history is in order.
The story goes something like this: In 2001, in order to fend off what officials feared would be a nasty recession, the Federal Reserve lowered the Fed Funds rate to stimulate the economy. Over the next few years, banks opened up their coffers (full of cheap money from the Fed) and loaned it to almost anybody who would take it. People who otherwise could not afford a home, now qualified. Eventually, those less-than-qualified, or subprime borrowers, could not afford the payments, and this caused lenders to file for bankruptcy, thus propelling the country into the Great Recession.
Which brings us to four years ago. In 2008, President George W. Bush signed the Troubled Asset Relief Program (TARP) into law. This law gave the Department of the Treasury the right to purchase or guarantee troubled assets. Much of the purchasing of these troubled assets, also called toxic assets, was in the form of risky mortgage-backed securities that were weighing on the banks' balance sheets.
Soon after enactment of the $700 billion Emergency Economic Stabilization Act of 2008, sometimes called "The TARP Act," the government earmarked the first $250 billion for the Capital Purchase Program (CPP). This program infused capital into larger banks with the hope of shoring up their balance sheets, giving them the confidence to lend money once again.
When the media began using the word, "bailout," the program quickly became controversial and still, four years later, TARP is seen as a program that gave banks deemed "too big to fail" a lifeline that average tax-paying citizens do not have. According to the CBO, TARP was not a means to throw away $700 billion of taxpayer dollars. Although the Dodd-Frank Wall Street Reform and Consumer Protection Act reduced the available funds from $700 billion to $475 billion, the controversy is still alive. Four years later, however, the statistics are much less ominous.
How Much Was Lent?
As part of the program, The Office of Management and Budget (OMB) is required to release semiannual reports on the cost of TARP. The Congressional Budget Office is then required to review the report and issue a statement of its own. In its latest release, OMB reported that of the original $700 billion, it disbursed only $431 billion.
How Much Went to Financial Institutions?
According to the October 2012 CBO report, the government disbursed $313 billion to financial institutions, almost all of which was paid back. The CBO estimates that taxpayers will realize a net gain of about $25 billion.
Capital Repurchase Program
The Capital Purchase Program allowed the government to purchase equity in financial institutions to bolster their financial stability. The government purchased $205 billion worth of preferred stock from 707 financial institutions. Of that investment, those institutions paid back $192 billion, or 94%. The CBO believes that taxpayers will see a net gain of $18 billion from that program.
The Auto Industry
General Motors and Chrysler received about $79 billion in disbursements from TARP funds, in addition to $5 billion in loans to parts manufacturers. In the end, the government only distributed $413 million to parts manufacturers, bringing the total cost to about $80 billion. To date, approximately $35 billion has been recouped.
The Bottom Line
The TARP program is estimated to cost taxpayers about $32 billion, much less than the OMB's report that estimated $63 billion. This is largely because the CBO projects a lower cost for the mortgage programs.
Although some of the funds will be lost or written off, the program comes at a much lower cost than previously expected and, while it is true that TARP provided an infusion of capital to banks (some would say they were "bailed out"), most of the banks have paid back the funds with interest.