New Numbers Show Fed Making Bank on the Bank Bailouts

Since last fall, it's been apparent that the government is turning a profit on many of the insurance schemes, backstops, and other measures it put into place to aid the stricken financial system. In several instances, the Federal Reserve, the Treasury, and the FDIC collected billions in fees in exchange for guarantees on money-market funds, on commercial paper, on bank-issued debt, and on other bank assets that never had to be used. Meanwhile, the central component of the TARP, the program under which the government bought preferred shares in banks, has yielded returns. Banks have paid back their borrowings, banks that remain in the program pay dividends (interest), and the government received warrants as a sweetener. 

In the past day, we've received two pieces of news that show the bailouts are getting cheaper by the day. First, on Monday, the Treasury released its quarterly TARP report. And as figure 2 on page 5 shows, the projected net cost of the TARP has shrunk by $109 billion from the original projections. From the outset the government figured it wouldn't get some portion of the funds lent to banks back in return. And other programs—like mortgage modification efforts—were never intended to be paid back. The upshot: due largely to improvements in the health of the banking sector, the net cost of the various TARP programs, originally forecast to be $178.2 billion, is now forecast to be $68.5 billion.

Second, as Neil Irwin reports in The Washington Post, the Federal Reserve earned a record profit of $45 billion in 2009—largely because it (a) purchased so many interest-yielding bonds and mortgage-backed securities as part of the bailout efforts, and (b) made emergency interest-bearing loans to banks, which are being paid back. The bailouts may remain unpopular. But with every passing day, they're becoming less expensive to the taxpayer.