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Government Lost Out on Billions With Bailout

US Capitol Building with cash
US Capitol Building with cash

The government has been touting the profitability of the bank bailout.

But those profits lag tens of billions of dollars behind what a private investor in the bailed out banks would have made.

According to a calculation released by the Treasury Department on Wednesday, the $700 billion Troubled Asset Relief Program will turn a $23.6 billion profit by 2013. The program was launched at the height of the financial crisis in 2008 to rescue failing financial institutions.

The original first eight recipients received $165 billion in exchange for preferred stock and warrants. All eight banks have repaid their TARP funds.

The estimated annual rate of return on the government's investments in those banks was 10.5 percent, according to Dr. Linus Wilson, a finance professor at University of Louisiana at Lafayette.

While this is a far better return than TARP critics expected, it pales in comparison to what a private investor would have made. Private investors who bought preferred stock in the same eight banks during that period received returns of 38.5 percent, according to Wilson’s analysis.

If the government’s investment had earned that kind of return, the profits would have been closer to $75 billion.

"While taxpayers will break even on their bank bailout investments the returns on these investments will lag the returns of private investors taking the same risk," Wilson says.

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