TARP Component Closes, Returns Tiny Profit for Taxpayers
Another TARP component has closed out — at a small profit to taxpayers.
When most people think of TARP, the Troubled Asset Relief Program, they think of the central component, the Capital Purchase Program, in which Treasury took equity stakes in hundreds of U.S. banks. But the TARP, like Walt Whitman, contained multitudes. While the CPP garnered the most headlines, it only accounted for a portion of the funds. TARP contained several other initiatives: aid to the auto industry and AIG, funds for mortgage modification, a separate program to help private investors buy toxic securities. (The full extent of the program can be seen in the TARP transactions report).
The small business and community lending initiative was one of the smallest components of TARP, a rounding error really. When the Small Business Administration makes loans, it bundles them up into securities and sells them to investors. In theory, securities backed by the SBA's 7a loans are relatively safe investments. The agency guarantees the lion's share of the loans. But when markets seized up in late 2008 and early 2009, there were few buyers.
Under TARP, Treasury was given the authority to spend $370 million to help unfreeze the market. In 2009 and 2010, Treasury spent $368.15 million to buy 31 securities backed by SBA loans. Over time, borrowers paid down the principal of the loans, and last June Treasury began to sell the securities to other investors — usually at a small profit. Last week, with the sale of the last eight securities for $63 million, Treasury officially closed out the program. The upshot: Treasury paid $368.15 million for the securities in 2009 and 2010, and received $376.2 million. That's a return of about $8 million, or 2.2 percent. It doesn't sound like much, but it's more than investors in two-year Treasuries would receive. Whatever benefit the small business and community lending initiative provided, it did so at no cost to the government or taxpayers.
Daniel Gross is economics editor at Yahoo! Finance.
Follow him on Twitter @grossdm; email him at grossdaniel11@yahoo.com.
His most recent book is Dumb Money: How Our Greatest Financial Minds Bankrupted the Nation.
