Tuesday, September 1, 2009

The So-Called TARP Profits

The New York Times had an update yesterday on a story we've been following here, the banks that have been repaying their TARP bailout money. According to the Times, the federal government has now reaped $4 billion in profits from the program. That's profits, not simply paybacks.

What the Times calls profits derives from the warrants that the banks sold to the government, the rights to buy their stock at deflated prices; the banks have now been buying back those warrants, resulting in profits to the government.

It's great that these have provided some money for our beleaguered Treasury Department, but let's not go overboard here. When the government lays out $700 billion in funding for struggling banks, it's of small comfort to hear that it's earned a profit of 4414 million on its investment in American Express.

The TARP program wasn't intended to be a money maker for the government, of course. It was intended to stabilize the banking system, and it seems to have done a fairly good job of that. To the extent that the taxpayers have been seeing some of our investment returned, that's a welcome sight as well. But the so-called profits are a minor, unimportant part of this entire deal.

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