Sorting Out the Rescue Plans

We make sense of where the government’s spending money to prop up the economy.

April 27, 2009

Confused by Washington’s trillion-dollar jumble of economic aid packages? No wonder. It’s a mass of overlapping loans, loan guarantees, equity stakes and more.

What’s more, the programs keep changing. The Targeted Asset Relief Program (TARP) was originally announced as a mechanism the government could use to get so-called toxic assets off the balance sheets of financial institutions, freeing up credit. In fact, it has been used mostly to shovel funds to distressed corporations, either through loans or through capital acquisitions. The Term Asset-Backed Loan Facility (TALF) was barely born before it started undergoing reconstructive surgery, adding to the types of eligible securitized loans.

It’s impossible to tell how much taxpayers will ultimately pay for the various programs. In some cases -- for most of the economic stimulus and mortgage relief for homeowners, for example -- the federal government will simply lay out the money to build new bridges, subsidize weatherization of homes, pay down mortgage debt or spur the use of electronic medical records. Such expenditures are expected to pay off in the long run -- in lower energy costs, more efficient transportation and health care, for instance -- leading to a more productive, faster growing economy. But the payback won’t show up as a line item on the Treasury Department’s books.

Sooner or later, many of the billions being laid out in the form of loans and loan guarantees will be paid back. In addition, companies such as AIG, Citigroup, Bank of America, Goldman Sachs and hundreds of banks which received government funds in exchange for shares, expect to repurchase the shares, returning the money to the U.S. Treasury.

Uncle Sam could actually wind up making a profit on some of these deals. If the companies recover -- and we expect many will, eventually -- the value of Uncle Sam’s shares will increase and be sold back to the companies at a profit. Similarly, under the Public-Private Investment Program, taxpayer funds will be invested, in partnership with private investors, in mortgage backed securities and other securitized loans and other assets. Shrewd investments by the private partners will yield profits down the road not only for themselves, but also for American taxpayers.

Meanwhile, total taxpayer liability is enormous – well into the trillions, if every potential loan, loan guarantee and investment is counted. The risk of losses of that magnitude is slim, however. Not every deal will pan out, but the majority won’t be stinkers. It will be years, however, before a final accounting can be done.

Here’s how we see the scorecard -- players and price tags -- stacking up today.

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