The True Cost of the TARP
Friday, January 30, 2009SUSIE GHARIB: The Obama administration is considering how to overhaul the $700 billion Troubled Asset Relief Program or TARP to get credit flowing again. Treasury Secretary Timothy Geithner met today with Fed Chairman Ben Bernanke and bank regulators to discuss it. While the TARP's $700 billion price tag draws the headlines, Stephanie Dhue looks at what the real cost might be.
STEPHANIE DHUE, NIGHTLY BUSINESS REPORT CORRESPONDENT: For its money, the government now owns stock in Citigroup, Wells Fargo, Bank of America, AIG and 215 other firms. Brookings fellow Doug Elliott, says since the government is now a stakeholder, the $700 billion price tag is misleading.
DOUGLAS ELLIOTT, SENIOR FELLOW, BROOKINGS: It's as if to say you were a bank and you lent a billion dollars and you just assumed, oh well, I gave away the money, so I'm going to get nothing back. It's the wrong way of looking at it.
DHUE: At the end of December, the government had doled out $247 billion of the TARP. The Congressional Budget Office figures those investments are now worth $183 billion, down $64 billion, a 26 percent loss, not a great investment, but not a wipeout either.
ELLIOTT: If you apply that to the whole $700 billion, the true cost isn't $700, it's $175 billion, which is still a big number, but it's very different.
DHUE: With the banks facing higher default rates on their mortgage, credit card and other loans, the money the government will spend to fix the problem is expected to grow. By some estimates, up to $4 trillion is needed to plug the hole in the banks' balance sheets. AEI's Alex Pollack spent 35 years in the banking business. He thinks those estimates may be wildly overblown.
ALEX POLLOCK, RESIDENT FELLOW, AMERICAN ENTERPRISE INSTITUTE: We know when we're rounding off to the nearest trillion dollars in losses we're probably into that panic psychology, but it's very hard to know.
DHUE: The true cost of the program won't be known until long after it's over and even then the benefits may not be appreciated.
POLLOCK: One of the most important payoffs is that something much worse didn't happen and you can't ever quite measure that or know it, but that's really what you're talking about.
DHUE: We'll keep reporting the $700 billion number, since we know the government will spend at least that and we don't know what the return on that investment will ultimately be. Stephanie Dhue, NIGHTLY BUSINESS REPORT, Washington.
