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July 22nd, 2009

U.S. Sees First Profit From TARP

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“So you will excuse me if the next time I hear about how bailing out the banks hurt the American taxpayer, I step outside to puke.”
-Richard Bove of Rochdale Research.

Goldman Sachs announced today that the U.S. will see a 23% return on the money they lent them as part of the Troubled Asset Relief Program (TARP). The investment bank made the announcement today as they repaid the last portions of their debt:

Including the cost of redeeming the warrants, Goldman said it paid $1.418 billion to the government, which works out to an annualized return of 23% for U.S. taxpayers.

“This return is reflective of the government’s assistance, which benefited the financial system, our firm and our shareholders,” Goldman Chief Executive Lloyd Blankfein said in a statement. “We are grateful for the government efforts.”

This is really the first concrete return the U.S. has seen on a string of heavily-criticized investments made possible by the taxpayer’s dime. The overall tune of the TARP has generally been a negative one, but now some analysts are bucking the trend by saying that the money was extremely well spent:

“The government is making a great deal of money on its investments,” Bove wrote in a note to clients. “It is increasingly apparent that this may have been the best use of taxpayer ‘funds,’ from an investment standpoint, in the history of the republic.”

Yet, this news seems to run contrary however to the data released yesterday by Neil Barofsky, the man in charge of overseeing the TARP. Barofsky said that by the time all is said and done, the rescue of our financial system could cost the American people $23.7 trillion.

Granted, Mr. Barofsky’s report covers several other financial-rescue programs besides just the TARP, but his sentiment is certainly in stark contrast to Bove’s. Furthermore, not every firm is having as easy a time as Goldman Sachs:

Morgan Stanley said Wednesday that it swung to a second-quarter loss after accounting for the costs of paying back a government investment and absorbing losses associated with its own debt securities.

The Treasury didn’t agree with Barofsky’s assessment yesterday, and we’re not quite sure how we feel about Bove’s. We’re hoping that the country’s return on TARP investments will find their way to the middle of these two extremes — and that it won’t be immediately spent, but will instead be used to reduce the country’s cavernous debt.

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HSH.com's daily blog focuses on the latest developments in the mortgage and housing markets. Our mission is to relate how changes in mortgage rates and housing policy, as well as the latest financial news, impacts consumers, homebuyers and industry insiders alike. Our 30-plus years of experience in the mortgage industry gives us an edge as we break down the latest changes in an ever-changing market.

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Tim Manni

Tim Manni is the Managing Editor of HSH.com and the author of their daily blog, which concentrates on the latest developments in the mortgage and housing markets.

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