By Daniel Gross, Newsweek
The troubled asset Relief Program, the controversial $700 billion package passed last fall in the wake of the Lehman Brothers collapse, wasn’t pitched as a bailout. Rather, then–Treasury secretary Henry Paulson presented it as an opportunity for the taxpayer to profit by making investments in name-brand companies. Indeed, during the Great Panic of 2008, American taxpayers reluctantly made a series of very expensive investments in blue-chip companies—Fannie Mae, AIG, General Motors. But it’s been hard to see the returns of these efforts, since they were designed to avert a total meltdown. Placing a value on an outcome that’s been avoided is the sort of counterfactual exercise ice-blooded economists process with alacrity, but is harder for emotional humans to deal with.
And yet. As we approach the anniversary of the Great Panic, some of the investments are clearly paying off in ways you and I can comprehend. The final cost of TARP will be a fraction of the original $700 billion, and taxpayers are turning a profit from its central component: the Capital Purchase Program.
Paulson’s initial efforts, continued by the Wall Street sharpies who succeeded him, had the characteristics of an investment fund. Under the CPP, the government would lend money to banks at 5 percent, through the purchase of preferred shares. As investors in troubled companies do, the government demanded an extra ounce of flesh: warrants, which are the right to buy a stock at a set price. It’s like lending money to a financially troubled friend to buy a house, but getting ownership of the kitchen
MORE….newsweek.
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