21 October 2010

TARP Surprisingly Cheap

TARP bailout funds are likely to be repaid in full, with interest, except for about $50 billion worth. And, so far, it has made about $25 billion of interest on the loans over what it would have earned had it simply made Treasury bond investments, as it usually does. Thus, the total cost of the program (which will generate more interest payments before it is terminated) is less than $25 billion.

For that one time net $25 billion or less expenditure, the federal government prevented many healthy busineses from collapsing simply because bankers had panicked and were refusing to make even safe loans, and saved many tens of thousands of middle class jobs at GM and Chrysler in the long term; which would otherwise probably moved overseas as imported vehicles made abroad replaced GM and Chrysler market share (in part). The tax revenues generated by those jobs that would otherwise have been lost will also reduce the net taxpayer cost of TARP significantly,

This isn't chump change and spending tens or even hundreds of thousands of dollars to save each long term middle class job isn't cheap, but it is a tiny fraction of the perceived taxpayer expenditure based on the total amount loaned, rather than the defaults net of interest. And, the benefits are underestimated.

Parallel programs, like the temporary government guarantee that privately insured money market funds would not break the buck, and FDIC operations, have also been surprisingly cheap, shut down panic, and been paid for to the extent they produced a cost, largely by the industry itself.

Ineffective stimulus money, like the home buyer tax credit, which created almost no increase in real estate sales over a period of more than a few months at an immense taxpayer cost, made far less sense.

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