US Gov brags about TARP's 8.2% Profit to Taxpayers, the reality is different

The fact that TARP is making money is counter-intuitive (read: unbelievable) to me, as I cannot believe that any initiative from the government can actually have a positive return. Consequently, I was happy to run into a report discussing these magical returns, and giving some sense of the reality behind these numbers. Well done, Bloomberg!

Oct. 20 (Bloomberg) -- The U.S. government’s bailout of financial firms through the Troubled Asset Relief Program provided taxpayers with higher returns than they could have made buying 30-year Treasury bonds -- enough money to fund the Securities and Exchange Commission for the next two decades.
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“From the perspective of the taxpayers getting their money back, TARP has been a great success,” said Todd Petzel, chief investment officer at New York-based Offit Capital Advisors LLC, which has more than $5 billion of assets under management. “But there are other costs as the government made it possible for the banks to pay back TARP. Those costs can turn out to be larger, and their legacy could last longer.”

[...] The suppression of interest rates at close to zero for most of the last two years has also boosted banks’ income, enabling them to borrow money at almost no cost and lend at higher rates. Those low rates drove down returns on instruments used by American savers. [...] Average rates for high-yield savings accounts, which generally have at least $10,000 in deposits and are insured by the Federal Deposit Insurance Corp., have ranged from 0.36 percent to 0.92 percent over the past two years, based on data from research firm Market Rates Insight in San Anselmo, California. A two-year CD purchased in October 2008 returned 2.8 percent annually, according to Bankrate.com, the North Palm Beach, Florida-based website that tracks bank products.
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One of those subsidies is the $350 billion that savers forgo each year because the Fed keeps interest rates near zero, according to Petzel’s calculations. While banks can borrow at close to zero from the Fed, they lend to consumers and corporations at almost 5 percent, or to the Treasury at 2.5 percent, and they get to keep the difference.

“The huge wealth transfer from fixed-income pensioners to the banks has helped the banks repay TARP,” Petzel said.

The government and the Fed took on more risk than just TARP during the crisis, which isn’t reflected in the program’s cost, said Nomi Prins, a former Goldman Sachs managing director and author of the 2009 book, “It Takes a Pillage: Behind the Bailouts, Bonuses, and Backroom Deals from Washington to Wall Street.”

According to Prins’s tally, the money plowed into the financial system to prop it up peaked at $19.4 trillion. Banks have benefited from that cash, which helped keep prices of mortgage securities, house prices and other assets overvalued, Prins said in an interview. Even though some of the support has been withdrawn, part of it will likely be lost, such as the hundreds of billions of dollars put into Fannie Mae and Freddie Mac, she said.

“These are all indirect subsidies the banks got,” Prins said. “So the TARP gains touted by the Treasury are only true if you ignore all the other costs.”

So the conclusion is now clear: TARP is only making money because all the hidden subsidies and wealth transfers orchestrated by the US Government and the Fed from US tax payers and US Dollar bearers are ignored. One more mystery resolved!