Will TARP Be the Cheapest Global Financial Bailout Ever? The Ticker

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By Deborah Solomon

The U.S. Treasury Department's sale of about $6 billion worth of its shares in American International Group Inc. is the latest reminder that the much-maligned financial rescue will be among the cheapest global financial bailouts on record.

But that may not be a good thing.

Recall, if you will, the panic-inducing days of fall 2008, when then-Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke headed to Capitol Hill with a sobering picture of a financial market on the brink of collapse. After much hemming and hawing, Congress approved an eye-popping $700 billion bailout.

In reality, just slightly more than half that amount was ultimately spent, with Treasury disbursing $414 billion under the Troubled Assets Relief Program. Many beneficiaries of taxpayer money have since paid the funds back, often with interest, and Treasury reports just $120.7 billion remains outstanding. Much of that will eventually be recouped and the Congressional Budget Office estimates the long-term cost of TARP to be just $28 billion.

When all is said and done, the bailout is likely to have cost less than 1 percent of U.S. gross domestic product, far lower than previous financial bailouts, such as those in Japan in 1992 or Argentina in 1981.

Economists and Obama administration officials may cheer the lower cost. But one reason for the smaller price tag is the limited amount spent on foreclosure-mitigation efforts through TARP. Just $3.2 billion of the $45 billion set aside for "housing" under TARP has actually been disbursed.

To be sure, the administration has launched other programs to combat foreclosures outside of TARP, and so the dollar amount spent on fixing housing woes will ultimately be higher. But if Treasury had aimed more firepower at  foreclosure mitigation in the beginning, it might have helped lift the housing market more quickly.

Still, there is good news in the government extricating itself from AIG. With the 206.9 million shares sold Thursday, Treasury now holds a 70 percent stake in the giant insurer, down from about 92 percent just last year. And AIG, whose collapse at one point threatened the entire financial system, is now so healthy that it agreed to buy back about half of the shares Treasury sold.

(Deborah Solomon is a member of the Bloomberg View editorial board. Follow her on Twitter.)

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-0- Mar/08/2012 21:51 GMT