Bailout “profit” is taxpayers’ loss

Charging a bank for an implicit government guarantee to absorb losses? According to the Wall Street Journal, the Federal Reserve and Treasury are demanding that Bank of America pay $500 million to exit a bailout deal that was never actually signed.

That’s a nice chunk of change, but taxpayers shouldn’t be fooled into thinking this — or any other bailout — is a good deal.

A very dangerous misconception is taking root in the press, that in addition to saving the world financial system, the bank bailout is making taxpayers money.

“As big banks repay bailout, U.S. sees profit” read the headline in the New York Times on Monday. The story was parroted on evening newscasts.

The trouble is the popular view that TARP was the bailout. That very unpopular $700 billion program got all the attention because it was an easy story to tell a general audience. It had a big ugly price tag; it was debated very publicly in Congress; and, most important, the list of recipients and their take was made public all at once.

So when those recipients pay back TARP — at a decent profit for taxpayers — bailouts all of a sudden don’t seem so bad.

But the bailout was much larger than TARP. There is FDIC’s debt guarantee program, which still backs over $300 billion worth of financial sector debt; there are the Federal Reserve’s emerging lending facilities, which have showered hundreds of billions of cash on banks in exchange for, well, we don’t know what. There was the AIG bailout, which gave the company tens of billions more. The total cost won’t be known for years, and the price tag is likely to be enormous.

Look no further than Fannie Mae and Freddie Mac. The moral of their story is that implicit

1 posted on 09/03/2009 11:00:18 PM PDT by FromLori

Oh cut it out Lori, your going to hurt some lobbyist feelings.

2 posted on 09/03/2009 11:02:03 PM PDT by Tempest (Placing Americans people before foreign corporate interest)

So when those recipients pay back TARP — at a decent profit for taxpayers — bailouts all of a sudden don’t seem so bad.

If it's so good for taxpayers, why haven't the taxes levied on me gone down?

3 posted on 09/04/2009 6:43:08 AM PDT by Sarajevo (You're jealous because the voices only talk to me.)

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