Beginning back in June, some of the larger banks began buying back the Treasury Department's preferred securities the Government purchased as part of the TARP Capital Purchase Program. You remember TARP (Troubled Asset Relief Program), right? It was passed as part of the Emergency Economic Stability Act (EESA) at the height of the credit crisis almost one year ago in the days following the collapse of Lehman Brothers, AIG and Bear Stearns. There was no shortage of debate or controversy at the time either. Many saw the $700 billion TARP program as a give-away to the Wall Street businesses that people thought got us into this mess. Others saw it as vital to preventing another Great Depression, and worth risking the "moral hazard" dilemma. Besides, those in support of the plan argued, if the banks survive, then the government might get paid back most of its $700 billion anyhow.
Although it may be too early to count TARP as a worthy gamble, it is interesting that, at least so far, the American Taxpayer has actually made money on the Government's investment in the nation's banks. Every few days, the Treasury Department releases a completed transactions report (latest one available here), that shows where the TARP money has gone, as well as the money that has been paid back. So far, 41 financial institutions have repaid the principal invested by the government. However, most also bought back the warrants issued as part of the purchase of preferred stock by the government. In doing so, the government has made about $2.89 billion on its investment, not including interest payments that were made during the time that the government was a preferred shareholder. About $70.5 billion of the total $200 billion invested in financial institutions has been paid back, with Citigroup indicating yesterday that it might be prepared to raise sufficient capital to buy out $20 billion of Uncle Sam's $45 billion investment in that company as well (article here). If the Treasury Department can make a similar return on investment on the remaining $130 billion investment in America's financial institutions, I think most taxpayers would be quite pleased indeed. Somewhere, Hank Paulson is smiling.