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Published: Saturday, 10/2/2010

Bank relief plan ready to cash out

McCLATCHY NEWSPAPERS

WASHINGTON — A wildly unpopular government rescue program credited by economists with preventing another Great Depression will go out of business Sunday, two years after it was created.

On Oct. 3, the Troubled Asset Relief Program, known as the bank bailout bill, loses authorization to make new expenditures. From that point forward, the program will wind down, although much of the money lent out has been repaid — at a profit for taxpayers.

Originally envisioned as a blank check for the government to spend as much as $700 billion to rescue the financial system, the actual cost to taxpayers is estimated now to be only a seventh of that amount.

The government has earned almost $13 billion in dividends from the bank stock it received in exchange for the taxpayers' investment and earned another $8.2 billion from the sale of preferred stock.

The Treasury Department estimates that taxpayers are still on the hook for about $100 billion at this point — a number expected to shrink with repayments and asset sales.

The nonpartisan Congressional Budget Office recently put the estimated total TARP cost at around $66 billion.

Still, the bailout became politically poisonous.

People considered it free money for Wall Street executives whose recklessness dragged the world into the Great Recession. Now those executives are receiving bonuses again while taxpayers remain plagued by 9.6 percent unemployment.

“Objectively, TARP has been an economic success. Politically, it's been a miserable failure,” said Darrell West, director of gover-nance studies at Washington's Brookings Institution, a center-left policy research center.

Even though TARP was a Bush administration initiative and got strong congressional support from Republicans in 2008, today's GOP has painted TARP alternately as a Wall Street bailout or a cash kitty to fund Democrats' wish list.

“TARP turned out to be a slush fund,” said Sen. Mike Johanns (R., Neb.).

President Obama “has not done as good a job communicating as he should. He's allowed the opponents to frame the issue unfavorably,” Mr. West said.

When first presented by then-Treasury Secretary Henry Paulson, TARP money was supposed to be used to buy toxic assets from banks to bolster their balance sheets, allowing them to resume lending.

Soon after the Oct. 3, 2008, creation of TARP, however, Mr. Paulson shifted gears and chose instead to inject $245 billion directly into banks.

That infuriated politicians and taxpayers alike.

Then in 2009, after receiving taxpayer money, many of the financial firms paid their executives huge bonuses.

About $40 billion in TARP money was used to backstop insurer American International Group, which was rescued by the Federal Reserve in September, 2008, to shore up the financial sector.

In December, 2008, then-President George W. Bush authorized some $17 billion in TARP funds to help General Motors and Chrysler avoid bankruptcy.

Eventually, expanding under Mr. Obama, about $82 billion in TARP money went to rescue the two automakers and keep credit flowing to their suppliers.

Unsavory as it was politically, economists credit these TARP efforts with helping to stabilize the financial sector and preventing an even worse outcome.

“I think it was a great success. The bank bailout part of TARP was an astounding success. Couldn't have gone any better,” said Mark Zandi, chief economist with forecaster Moody's Analytics.

For politicians who voted for TARP, however, the challenge remains how to sell voters on the idea that it prevented something bad from happening.

Of the $245 billion injected into 707 financial institutions, all but about $54 billion has been repaid.

Of that outstanding amount, $30.75 billion is owed by big global banks that were subjected to special “stress tests” by regulators last year.

However, several large regional banks, including SunTrust Bank, Regions Bank, KeyCorp, and Fifth Third Bank, respectively still owe $4.85 billion, $3.5 billion, $2.5 billion, and $3.4 billion.

The Treasury Department expects to be fully repaid, with interest and profit from its TARP cash injections.

Meanwhile, the White House issued a report Friday saying Mr. Obama's $800 billion-plus economic stimulus law — which is separate from TARP — is on track to produce the promised 3.5 million jobs.

The report said about two-thirds of the stimulus money has been spent via tax cuts or government spending and little of the money has gone out fraudulently.

The stimulus bill was passed in February, 2009, to try to reverse the worst recession since the Great Depression.

The White House and many economists credit it with giving the economy a jolt, but Republicans say it's been ineffective.



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