The $700 billion Troubled Asset Relief Program, known as TARP, was created by Congress last fall despite criticism that it was a huge risk that would only encourage Wall Street's profligate ways. But in recent months tens of billions of dollars have begun flowing from banks to the U.S. Treasury.
Bank of America's decision last week to repay one of the largest chunks — $45 billion — reflects the turnaround of the financial industry and demonstrates that the government's unpopular medicine appears to have saved the patient. And the price tag isn't as large as expected.
"It turns out, actually, TARP — as wildly unpopular as it has been — has been much cheaper than any of us anticipated," President Barack Obama said Thursday at a White House summit on creating jobs.
Federal Reserve Chairman Ben Bernanke, who pushed for the fund's creation, made a similar point at a Senate hearing Thursday on his nomination to a second term.
"Unlike some of the scare stories about $700 billion being thrown away, I do believe … in the end that there'll be something close to a break-even there," Bernanke said.
The TARP program may break even, that is, on its first and biggest use of taxpayer money: investing billions — $205 billion as of last Monday — directly in banks.
Including Bank of America's expected repayment, $116 billion — more than half — of that amount has come back to the government, along with about $10 billion in dividends and interest.
Some experts, however, predict the TARP fund will end up $150 billion or more in the red because the Bush and Obama administrations found additional uses for the program's money. Totaling $270 billion, those add-on uses include higher-risk investments in American International Group, General Motors and Chrysler, as well as expenditures on incentives to encourage lenders to modify mortgage terms. Little of that money has come back.
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