TARP Costs

Morgan Kelly’s recent Irish Times article covers a lot of ground; this post is just about a single dimension of his contribution.

One point he makes is to look at the US TARP:

We can gain a sobering perspective on the impossible disproportion between the bailout and our economic resources by looking at the US. The government there set aside $700 billion (€557 billion) to buy troubled bank assets, and the final cost to the American taxpayer is about $150 billion. These sound like, and are, astronomical numbers.

The estimated cost of TARP has fluctuated quite a bit over time  (the US Treasury helpfully releases valuation updates four times a year).   The most recent release is from last Friday, with the current estimated cost at $105.4 billion.  It is especially noteworthy that the TARP components related to the banking sector per se are projected to make a profit, while the main losses relate to AIG, assistance to homeowners and assistance to the US automobile industry.

The release is here (see also the links there to the underlying calculations).

Of course, the realised fiscal cost of TARP does not provide sufficient information to judge the overall effectiveness of TARP, since it is important to take into account the impact of early repayment of TARP funds on the behaviour of US banks, plus other broader factors.

Finally, the main point remains – the size of the Irish banking intervention (relative to the size of the economy) is much larger than the TARP, reflecting the much more generalised banking crisis here.