Market Talk

Surprised? Ah, yeah. Did I hear you say "TARP profit"?

Finance bloggers will never be confused for shy, quiet people. They’re more than willing to do a full-out takedown of something that sparks their ire.

A few bloggers were rather incensed today after The New York Times and Financial Times each published stories detailing how the government is supposedly profiting off of the hundreds of billions of dollars spent on bank bailouts.

Even if the Treasury is making money off the eight biggest banks that have repaid their TARP obligations, losses from AIG, Fannie Mae (FNM), Freddie Mac (FRE), GM and Chrysler can’t be ignored, bloggers say.

And other costs associated with TARP, such as lost tax revenues and stimulus plans, must be accounted for before discussing TARP profitability.

Nevertheless, NYT presents the case that taxpayers will benefit from the bailouts because Treasury is making money off the TARP, with Goldman Sachs (GS) and Morgan Stanley (MS) providing highest return on investment.

From NYT:

The profits, collected from eight of the biggest banks that have fully repaid their obligations to the government, come to about $4 billion, or the equivalent of about 15 percent annually, according to calculations compiled for The New York Times.

NYT suggests the government’s made $1.4 billion from investing in Goldman, $1.3 billion on Morgan Stanely and $414 million on American Express (AXP).

“If you believe that, I have a bridge in Brooklyn I’d like to sell you,” Yves Smith writes at naked capitalism. “The fact that we have such patent garbage running as a front page New York Times story says either the reporter and his editors lack the ability to think critically (or find sources who could do that for them) or that we have a controlled press.”

It’s still way too early to say TARP was a financial success because “only a small portion of the TARP has been retired,” she notes. So be careful trusting these reports, because they suggest “we should be really happy if financial firms throw themselves off the cliff again en masse, since that will give us all the opportunity to make even more money by rescuing them.”

Additionally, losses from AIG, Fannie, Freddie, GM and Chrysler can’t be ignored, even if Uncle Sam made money off the big banks that’ve fully repaid TARP funds, FusionIQ CEO Barry Ritholtz writes at The Big Picture.

“What this is more appropriately described as is a return of capital; to call this a profit is to ignore trillions of dollars in taxpayer monies that have been spent, lent, guaranteed, drawn against and otherwise consumed in what will likely be the greatest transfer of wealth in the planet’s history,” he says.

Time’s Curious Capitalist blogger Justin Fox takes a more balanced approach to the situation, noting if TARP becomes a moneymaker, there are other costs, such as lost tax revenues and stimulus programs, that’ll more than offset any gains.

With that said, if the government does end up profiting off TARP, folks shouldn’t be that suprised, he adds.

“By pouring money into the financial system when private investors would not, Washington was making an investment that was likely to pay off,” he notes. “It was doing what a good value investor would, buying into banks when banks were cheap.”

Of course TARP’s real costs may be “harder-to-measure things like mixed-up incentives in the financial business and a reduced impetus toward financial reform.”