How Uncle Sam will profit from TARP

By Jia Lynn Yang, writer


WASHINGTON (Fortune) -- Guess what? The federal government will make money on bailing out the banks.

According to new numbers issued today by the non-partisan Congressional Budget Office, a key part of the much-loathed Troubled Asset Relief Program, or TARP, has become a profit center for the U.S. government.

The CBO projects the government will ultimately make a profit of $7 billion from assisting the banks: $3 billion from the Capital Purchase Program, in which the government propped up banks by purchasing preferred stock; $2 billion from helping Citigroup (C, Fortune 500); and another $2 billion from helping Bank of America (BAC, Fortune 500).

In other words, the banks are on track not only to pay taxpayers back all the $200 billion plus we've lent them, but put a dent -- albeit a small one -- in our enormous budget deficits.

President Obama recently proposed a $90 billion tax on the banks to "recover every single dime the American people are owed." But if taxpayers really want their money back from TARP, which the CBO now estimates will cost $99 billion, they should go knocking on the doors of AIG (AIG, Fortune 500), GM, and Chrysler.

CBO projects the government will lose $9 billion from helping AIG, and another $47 billion from saving the auto industry. Yet another suck on taxpayer money: the $20 billion that will be lost from the Home Affordable Mortgage Program.

What's more surprising from today's numbers is that CBO estimates, in the near term at least, TARP is helping the budget: $67 billion for fiscal year 2010.

That's because last year CBO thought TARP would be much worse off, losing $356 billion in the program's lifetime; the agency went ahead and recorded $151 billion in subsidy costs for 2009. Since CBO's new, lower estimate on TARP's cost is $99 billion, to make up for last year's overly pessimistic outlook, it's recording a $67 billion profit on TARP for 2010.

Considering that this year's deficit is projected to be $65 billion less than last year's, we can thank TARP (and the bank's repayments) for the 2010 deficit's marginal improvement.

Who knew: When it comes to the $1.3 trillion federal budget deficit, the bank bailout portion of TARP isn't the problem. It's part of the solution. To top of page