NEW YORK (TheStreet) -- We just celebrated the fifth anniversary of the Troubled Asset Relief Program, or TARP, which was signed into law in October 2008. Separate and in addition to TARP were the bailouts of Fannie Mae (FNMA) and Freddie Mac by the federal government. It's hard to believe how far we have come since then. We can all remember when the world was ending -- for the very first time -- and the U.S. Treasury became the creditor of last resort for pretty much everyone.
Our banks needed money, European banks needed money, AIG (AIG) needed money, Chrysler and GM (GM) needed money; the list seemed endless. On Oct. 3, 2008, Uncle Sam caved and authorized up to $700 billion in emergency loans to these struggling entities. In 2010, that amount was later revised down to $475 billion, but along with Fannie and Freddie, the Treasury loaned out $608 billion. The term bailout has quite a negative connotation, but is Uncle Sam being misconstrued as a sap instead of a forward-thinking businessman?
In retrospect, wouldn't it have been great to be able to step in at the market bottom and profit from the dramatic recovery of these financial and related assets? Can you imagine if every American were to benefit from our government's timely trade?
We did, you just haven't heard about it. What you have heard, along with a great deal of moaning and groaning, is how these bailouts cost American taxpayers billions of dollars. It's simply not true.Breaking the Bailout's Bad Rap Thus far, $569 billion of the $608 billion referenced above has been returned -- roughly 2/3 of which ($371 billion) were principal payments and the remaining 1/3 ($198 billion) in dividends, interest, fees, and warrants. This means there is still another 1/3 in principal outstanding, with interest accruing. Some quick math shows us the Treasury is going to come out ahead on this deal. Not only were the controversial bailouts not written off as an across-the-board loss, they will actually end up making the American taxpayers billions of dollars. It's not going to show up as a refund check from Treasury Secretary Jack Lew in every mailbox, but it will contribute to reducing (yes, reducing) our nation's overall indebtedness. (An excellent resource for all things bailout can be found here.)
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