April 13, 2012 at 4:42 PM ET
The U.S. Treasury Department said on Friday that the many programs that it, the Federal Reserve and banking authorities implemented during the darkest hours of the 2007-2009 financial crisis likely will end up making a profit for taxpayers.
At a background presentation for reporters, a senior Treasury official who spoke on condition of anonymity said the department wanted to get word out about the success of the financial bailout before myths developed about it.
The senior official emphasized that rescue of the tottering financial system, which was on the verge of collapse in 2008, had been a bipartisan effort undertaken initially by the Bush administration and continued when President Barack Obama took office in 2009.
Collectively, these programs—carried out by both a Republican and a Democratic administration—were effective in preventing the collapse of the financial system, in restarting economic growth, and in restoring access to credit and capital. They were well-designed and carefully managed. Because of this, we were able to limit the broader economic and financial damage.
There were various pieces to the rescue that caused the Treasury to make investments in some big banks in return for bailout money, and they now are turning out to be profitable. The Fed is also remitting excess earnings from programs it ran to the Treasury.
Earlier this week, the Treasury scaled back the ultimate estimated cost of the centerpiece program, the Troubled Asset Relief Program, or TARP, to around $60 billion from a previous estimate of $68 billion.
It cited rising share prices for two of the companies it rescued, General Motors Co and American International Group. More than three years after TARP was launched, the government still has a 70 percent stake in AIG and a 26.5 percent holding in GM.
The senior Treasury official said it was important that future government officials have a clear picture of how the overall rescue program had worked in case they were confronted with a similar situation.
In response to questions, the senior official said he was confident that government officials had taken the right decisions in implementing the rescue and doubted that a much better outcome could have been achieved.
The report concludes:
Although the economy is getting stronger, we have a long way to go to fully repair the damage the crisis has left behind. We are still living with the broader economic cost of the crisis, which can be seen in high unemployment, the moderate pace of recovery, fiscal deficits still swollen by the crisis, the remaining constraints on access to credit, and the remaining challenges in the housing market.
But the damage would have been far worse, and the costs far higher, without the government’s forceful response.
Reuters contributed to this report.