TARP Was No Win for the Taxpayers

ALG Editor’s Note: As Americans for Limited Government has previously reported, the $700 billion Troubled Asset Relief Program (TARP) was quickly converted by then-Treasury Secretary into a bank recapitalization program. Then, when the Federal Reserve intervened to instead buy $1.25 trillion of “toxic” assets, it enabled speedy repayment of the TARP loans. In the following featured column from the Wall Street Journal, the Congressional Oversight Panel makes the same point:

By PAUL ATKINS, MARK MCWATTERS AND KENNETH TROSKE

TARP banks own billions of dollars worth of MBS and have remained liquid in part because the Federal Reserve has bought more than $1.1 trillion of these GSE-guaranteed MBS in the securities markets—all outside TARP.

The Fed purchased the MBS at fair market value, but this value reflects Treasury’s bailout and continued support of the GSEs—also done outside of TARP with taxpayer money. Had the GSEs failed, TARP recipients probably would have been stuck with these MBS, writing them down at significant loss. Their ability to pay back TARP funding would have been hurt, and they might have had to obtain more TARP funds or go bust.

So the taxpayer-backed GSE guarantee enables the Fed to prop up the market with taxpayer funds, in turn allowing the TARP banks to “repay” their TARP funds.

Get full story here from the Wall Street Journal.