US treasury makes $16 billion profit from bailouts
24 Dec 2009
Skeptics who derided the US government for risking taxpayer's money to bail out financial institutions during the financial market crisis will be surprised to know that the taxpayers have already reaped over $16 billion in profits from all TARP programmes so far.
Not only has the US treasury made a profit of $16 billion so far, the profits are likely to be far higher since the treasury is preparing to sell additional warrants in the coming weeks.
The Troubled Assets Relief Programme (TARP) was created during the last month of the then US President George Bush's term in office in October 2008. The objective of TARP is to buy toxic mortgage assets from banks, which would give them enough liquidity to unfreeze the credit markets and avert a financial meltdown.
Those who avail of TARP funds, have to pay the US treasury a dividend at the rate of 5 per cent per year for the first five years, which is normally paid in four installments each year.
The US Congress had passed a bill authorising the treasury to buy up to $700 billion in troubled assets or any other financial instrument that the treasury deems fit in order to stabilize the financial market. (See: US Senate bails out markets – passes $700-billion package)
Later, the treasury used its discretion to bail out banks, insurance companies and automakers by buying their stock and debt in order to keep the US economy rolling as well as safeguarding jobs.(See: US to extend reach of $700 billion bail-out package)
