TARP Could Have Been Even Better for Taxpayers

Here at The Atlantic Business we've mentioned a few times that everybody hated the financial industry bailout (TARP), but it actually worked pretty well. Indeed, it looks like there's some chance taxpayers could reap a small profit from the bank portion. But TARP wasn't originally intended just drop bags of money on banks: it was supposed to consist of banks selling toxic securities to the government. Those bad assets were the reason why the credit crunch occurred, so getting them off bank balance sheets would have strengthened investor confidence in these institutions.

Unfortunately, Treasury Secretary Henry Paulson couldn't figure out a way to make the purchases work. So instead, he threw his hands up and just gave the banks lots of money anyway. But according to an article by Christopher Condon at Bloomberg, that original conception might have served taxpayers even better. The few asset purchases that were made did quite well:

The eight funds created under the Public-Private Investment Program, or PPIP, reported net internal rates of return averaging 36 percent through Sept. 30, the Treasury Department said in a report this week. That compares with the 10 percent return for the Standard & Poor's 500 Index and 8.2 percent for the BarCap U.S. Aggregate Total Return Index of bonds.

Compare that to the rest of TARP's 8.2% return. Taxpayers could have fared worse, but if the Treasury had purchased these illiquid securities instead, they could also have fared much better.

Read the full story at Bloomberg.

Update: It turns out that Bloomberg's estimate might be a touch optimistic. Here's an alternative view of how well these securities are doing, via CNBC's NetNet.