Wed Sep 2nd, 2009 at 04:13:07 AM EST
When I read articles like "As Banks Repay Bailout Money, U.S. Sees a Profit" in the New York Times which claims that "The profits, collected from eight of the biggest banks that have fully repaid their obligations to the government, come to about $4 billion", I become skeptical.
My skepticism is compounded when I read in the Financial Times that the Fed makes $14bn profit on crisis loans (hat tip marco).
The Federal Reserve has made a $14bn profit on loan programmes that have provided hundreds of billions of dollars in liquidity to the financial system since the start of the crisis two years ago, according to Fed officials.
The "Bailout Propaganda Begins" blogs Matt Taibbi. He writes:
Since only a small portion of the debt has been put down by the best borrowers, and since the borrowers in the worst shape haven't retired their obligations yet, it's crazy to make any conclusions about TARP, pure sophistry. Moreover, a think tank set up to analyze TARP, Ethisphere, calculated in June that TARP was still $148 billion down overall, a debt of over $1200 per American. To start talking about what a success TARP is now is beyond meaningless.
So, pretending for a moment that those those 'profit' amounts were actually legitimate, how much of it is offset by the devaluation of the dollar that has happened since the U.S. began handing out bailout checks to the banks?
According to the U.S. Federal Reserve in St. Louis on October 3, 2008, George W. Bush signed into law the $700 billion bailout (pdf).
According to the historical exchange rates at xe.com, the U.S. dollar exchange for the euro on that day was: $1 = 0.7237466905. So the $700,000,000,000 bailout was worth 506,622,683,350.
Today, according to xe.com: $1 = 0.7045619538. Now the $700,000,000,000 is worth only 493,193,367,660.
So in the time since the bailout, the U.S. dollar has further weakened compared to the euro. So how much of that 'profit' is just offset (or lost) by the devaluation of the dollar?
If all my calculator-number punching is correct, that $700 billion is worth $13,429,315,690 less than it was worth the day the TARP money was authorized. So not much a 'profit', if even a fictional one.
Taibbi predicts we'll be reading a lot more in the coming years of "intellectual desperation and magical-thinking" claiming the bailouts were wonderfully profitable. I wonder how little the dollar will be worth when compared to the euro in another 10 months?