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Treasury predicts all federal bailouts likely will turn profit

April 13, 2012|By Jim Puzzanghera
  • The U.S. Treasury building in Washington.
The U.S. Treasury building in Washington. (Paul J. Richards/AFP/Getty…)

WASHINGTON -- The Obama administration expects to recoup all the bailout money spent on banking and insurance firms, auto companies, mortgage finance companies and struggling homeowners during and after the 2008 financial crisis -- and likely turn a profit.

By 2022, the bailouts are expected to produce a profit for taxpayers – as much as $163 billion in a best-case scenario. That’s a stark turnaround from predictions of hundreds of billions of dollars in losses in the immediate aftermath of the unprecedented interventions.

The predictions were sketched out in new Treasury data released Friday, included in a series of charts highlighting the positive impact of the response to the financial crisis by the Bush and Obama administrations.

But senior officials cautioned that those projections are based on the recovery of the economy and the housing market and would only go so far as to say a profit is likely.

The biggest factor affecting whether the programs turn a profit is the future of Fannie Mae and Freddie Mac, the housing finance giants seized by the government in 2008 on the brink of collapse.

Taxpayers have pumped a total of about $188 billion into the companies to cover losses from bad mortgages owned or backed by the firms. But Fannie and Freddie have paid about $41 billion to the government in dividends.

While the current net cost of those rescues is about $151 billion, the Obama administration projects that will drop to $28 billion by 2022.

The new estimate includes the $700 billion Troubled Asset Relief Program, known as TARP, as well as the broader rescue of American International Group, housing finance giants Fannie Mae and Freddie Mac, as well as the Federal Reserve's dramatic expansion of its balance sheet through purchases of mortgage-backed securities and other investments.

It's largely the profits from those Federal Reserve investments that will lead to the profit. The Fed has been turning record profits over to the Treasury in the past few years, and Obama administration officials project the central bank will turn over $179 billion in excess profits through 2015.

RELATED:

Former bailout watchdogs criticize AIG tax break

Audit faults execution of program to aid homeowners

U.S. turns a profit on bailout's mortgage-backed securities


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