Will Treasury Make Money On Bank Rescues?
RENEE MONTAGNE, host:
When the Treasury began pouring money into troubled banks last year, many taxpayers were furious, fearing billions were going down the drain. But now some of that bailout money is coming back. To find out whether taxpayers are reaping good returns from the financial rescue, we turned to David Wessel, he's economics editor of the Wall Street Journal. Good morning.
Mr. DAVID WESSEL (Economics Editor, Wall Street Journal): Good morning, Renee.
MONTAGNE: Let's start with $700 billion - that was the bailout, that money that ended up as infusions into banks. Is that turning out to have been a profitable investment?
Mr. WESSEL: Well, if you look only at the banks that have paid back the money, which is the stronger banks - we report in the Wall Street Journal this morning that a firm called SNL Financial estimates that 34 banks, big and small, have paid back $70 billion in TARP money, and the government has made a $5 billion profit on that - which works out to a seven percent annual return at an annual rate, which isn't bad.
But there are a lot of weak banks that haven't paid back the money and there are a lot of guarantees that the government made that probably will have to -that people won't pay back the money. So, we're getting the good news first and we'll get the bad news later.
MONTAGNE: Well, if taxpayers do turn a profit, even in some cases, does that mean the bailout is successful or at least partially successful?
Mr. WESSEL: Well, making money is definitely better than losing money. But the point of all this was not to make money - the government isn't an investment manager - it was to save the financial system in order to save the U.S. economy from an even worse recession than we really had. So, that's the big test.
It's also important, I think, to remember that most of the banks got money from the government, from the taxpayers, at terms they could never have gotten it on the private market. So, in that sense, there was a subsidy to these companies even if we make some money on it.
MONTAGNE: Well, still, do these recent reports of profits and then hearing about banks actually paying back their bailout fund, does it make life easier for Treasury Secretary Tim Geithner and also maybe Fed Chairman Ben Bernanke?
Mr. WESSEL: Oh, absolutely. Look, it's much better to make money than to lose money, and I'm sure they were very happy at the headlines this week about profits that were being made. But I think that this isn't going to remove all the anxiety about the bailout.
People are very exorcised about the money that bankers are being paid, and that seems to get much more traction with the public than some complicated accounting about if you do the TARP money this way, we make money, and if you look at the guarantee as another way, we didn't make money.
But fundamentally, I think people want a strong economy. And if the economy turns out to be strong and healthy in a few months, the bailout will look to have been a success. And if the economy is languishing, if unemployment remains at 10 percent for another year and a half, then they're going to judge the bailout to have been a disaster.
MONTAGNE: And either of those two futures are possible?
Mr. WESSEL: Absolutely. Although, the recent signs are that the economy here and abroad seems to be coming back somewhat better than a lot of people expected, including me.
MONTAGNE: David, thanks very much.
Mr. WESSEL: You're welcome.
MONTAGNE: David Wessel is the economics editor of the Wall Street Journal.