So Far, So Good as TARP Turns One

While Fannie and Freddie have paid dividends, those payments have been like throwing sand against the wind. The two mortgage finance giants posted $2.1 billion in dividend payments through the first half of this year, while the government has had to funnel another $66.6 billion in additional capital into the firms to cover escalating losses.

Treasury Secretary Henry Paulson promised TARP would prove "an investment, not an expenditure" and said "there is no reason to expect this program will cost taxpayers anything." That may be true, but TARP is just one piece of a complex bailout puzzle that includes not just the AIG, Fannie and Freddie investments, but trillions of dollars worth of liquidity pumped into the system by the Federal Reserve.

The Fed's balance sheet now holds $1.7 trillion in securities -- including Treasury bonds, mortgage-backed securities and Fannie and Freddie debt -- as well as tens of billions of dollars in asset-backed loans and commercial paper, and $61 billion in toxic assets collected from Bear Stearns and AIG.

A good chunk of the bad assets that taxpayers now own will simply go sour. Transforming these holdings from bailouts -- if not expenditures -- to investments may depend on an investor's time horizon. One hopes that taxpayers are patient.

-- Written by Lauren Tara LaCapra in New York.

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