In 2008, at the brink of the subprime meltdown, President George W. Bush signed in to law a highly controversial bill that provided help to struggling banks who looked to be destined for bankruptcy. Not only did the Troubled Asset Relief Program (TARP) provide aid to the banks, but it was that bill that gave America a new political buzzword: bailout.

TUTORIAL: Credit Crisis

Americans saw a price tag of $700 billion and immediately associated this figure with money lost. Each American citizen would contribute about $2,200 to a fund that would bailout greedy banks. Even today, especially during an election season, TARP has become an American poster child for corporate greed. Is it entirely accurate for Americans to hold such a grudge for TARP? Possibly not. Let's take a look at TARP three years later. (For a look at past government interventions in the market, read Top 6 U.S. Government Financial Bailouts.)

Not Even Close to $700 Billion
Although TARP was authorized for $700 billion, the price tag never came close to it. According to the Congressional Budget Office (CBO), in March of 2011, $432 of the $700 billion has been disbursed. Although there will be further payments, they are minute compared to the intended amount.

It Was Supposed to Cost $300 Billion
Seven hundred billion wouldn't have been as hard for American taxpayers to swallow if they were going to get it all back. From the beginning, TARP was intended to be an investment by the
U.S. Treasury, but large-scale losses were worked into the figure. Original estimates forecasted tax payers losing $300 billion, but three years later the program is on track to beat those estimates.

The CBO, in its March 2011 report, found that the estimated loss was only $19 billion while other independent estimates forecast that TARP may cost nothing at all. The actual losses are largely dependent on the future growth of the investment markets and how they affect the value of the warrants and common stock positions still held by the Treasury.

The Banks
Of the $245 billion invested into the banks, $169 billion, or 68%, has been paid back with interest. Wells Fargo held its TARP money for 14 months before paying it back. In those 14 months, they paid the Treasury $132 million in

dividend payments. Because the Treasury requires an equity stake in the form of preferred stock, warrants or senior debt securities, all companies receiving TARP money have to pay it back with interest or dividend payments.

Most of the other banks, including Bank of America, JP Morgan Chase, Goldman Sachs and American Express have paid the Treasury in full.

The Auto Industry
To date, Chrysler has paid back $10.6 billion of the $12.5 billion that it borrowed. General Motors has paid $8.1 billion of the total $13.4 billion. Of the $80 billion borrowed in total, only $29 billion has been repaid. So far, it appears that it is the auto industry, not the banks, who may deserve the brunt of the taxpayer wrath.

The Bottom Line
Although some of the outstanding funds will never be paid back, the CBO believes that most of it will. Once dividends, capital appreciation on the warrants and stock appreciation is factored in at future market prices, TARP may end up being a program that provided needed assistance that resulted in a large amount of American jobs saved. (For additional reading, check out How The U.S. Government Formulates Monetary Policy.)

Related Articles
  1. Insurance

    Medicare 101: Do You Need All 4 Parts?

    Medicare is the United States’ health insurance program for those over age 65. Medicare has four parts, but you might not need them all.
  2. Economics

    Understanding Donald Trump's Stance on China

    Find out why China bothers Donald Trump so much, and why the 2016 Republican presidential candidate argues for a return to protectionist trade policies.
  3. Economics

    Will Putin Ever Leave Office?

    Find out when, or if, Russian President Vladimir Putin will ever relinquish control over the Russian government, and whether it matters.
  4. Markets

    Will Paris Attacks Undo the European Union Dream?

    Last Friday's attacks in Paris are transforming the migrant crisis into an EU security threat, which could undermine the European Union dream.
  5. Investing Basics

    4 Iconic Financial Companies That No Longer Exist

    Learn how poor management, frauds, scandals or mergers wiped out some of the most recognizable brands in the finance industry in the United States.
  6. Budgeting

    How Much Will it Cost to Become President In 2016?

    The 2016 race to the White House will largely be determined by who can spend the most money. Here is a look at how much it will cost to win the presidency.
  7. Entrepreneurship

    10 Ways to Be a Successful Entrepreneur

    Are you hoping to launch your own business and work for yourself? If so, here are the top 10 tips for entrepreneurs.
  8. Investing

    The Enormous Long-Term Cost of Holding Cash

    We take a look into how investors are still being impacted by the memory of the tech bubble and the advent of the last financial crisis.
  9. Active Trading

    What Is A Pyramid Scheme?

    The FTC announced it had opened an official investigation of Herbalife, which has been accused of running a pyramid scheme. But what exactly does that mean?
  10. Options & Futures

    Terrorism's Effects on Wall Street

    Terrorist activity tends to have a negative impact on the markets, but just how much? Find out how to take cover.
  1. What does it mean when someone refers to the "Big Three" automobile sector?

    The Big Three refers to the top three American automotive companies. The Big Three comprises Chrysler, General Motors and ... Read Full Answer >>
  2. Which mutual funds made money in 2008?

    Out of the 2,800 mutual funds that Morningstar, Inc., the leading provider of independent investment research in North America, ... Read Full Answer >>
  3. Does working capital include stock?

    A certain portion of a company’s working capital is generally composed of earnings; however, current short-term assets that ... Read Full Answer >>
  4. What is the Social Security administration responsible for?

    The main responsibility of the U.S. Social Security Administration, or SSA, is overseeing the country's Social Security program. ... Read Full Answer >>
  5. Where are the Social Security administration headquarters?

    The U.S. Social Security Administration, or SSA, is headquartered in Woodlawn, Maryland, a suburb just outside of Baltimore. ... Read Full Answer >>
  6. Is the Social Security administration a government corporation?

    The U.S. Social Security Administration (SSA) is a government agency, not a government corporation. President Franklin Roosevelt ... Read Full Answer >>

You May Also Like

Hot Definitions
  1. Barefoot Pilgrim

    A slang term for an unsophisticated investor who loses all of his or her wealth by trading equities in the stock market. ...
  2. Quick Ratio

    The quick ratio is an indicator of a company’s short-term liquidity. The quick ratio measures a company’s ability to meet ...
  3. Black Tuesday

    October 29, 1929, when the DJIA fell 12% - one of the largest one-day drops in stock market history. More than 16 million ...
  4. Black Monday

    October 19, 1987, when the Dow Jones Industrial Average (DJIA) lost almost 22% in a single day. That event marked the beginning ...
  5. Monetary Policy

    Monetary policy is the actions of a central bank, currency board or other regulatory committee that determine the size and ...
  6. Indemnity

    Indemnity is compensation for damages or loss. Indemnity in the legal sense may also refer to an exemption from liability ...
Trading Center