Financial Crisis Bailouts: What Did They Actually Cost Taxpayers?
An ongoing trial about the American International Group Inc (NYSE: AIG) bailout has been grabbing a lot of headlines this week, with high-profile witnesses such as former Treasury Secretaries Timothy Geithner and Hank Paulson, and former Chairman of the Federal Reserve Ben Bernanke.
There was nothing more polarizing back in 2008, though, than the Treasury Department's financial bailouts of then-failing American companies.
Supporters of the bailouts argued they were necessary to prevent economic collapse, while opponents argued it was not taxpayers' responsibility to provide aid.
Six years later, it's worth running through where the bailout money went and how much of it has been returned.
Fannie And Freddie
Together, these two government-sponsored mortgage aggregators received more than $187 billion in taxpayer money to stay afloat. In exchange, Federal National Mortgage Association (OTCBB: FNMA) and Federal Home Loan Mortgage Corp (OTCBB: FMCC) were placed under government conservatorship, and are in the process of being "unwound" by the U.S. Treasury.
Fortunately for taxpayers, Fannie and Freddie's businesses have been steadily improving since the worst of the crisis, and every cent of both entities' profits has come back to the Treasury.
Result: $31 billion profit
During the financial crisis, AIG provided insurance to owners of sub-prime mortgage-backed securities. When it became clear that the company would have no means of paying the claims on these insurance policies on its own, the Treasury provided AIG with about $68 billion in taxpayer dollars in exchange for a near-80 percent equity stake in the company via warrants.
Since AIG's core insurance business was never the cause of its problems, the company began to recover as soon as the economy stabilized.
By the end of 2012, the Treasury had sold all of its shares of AIG stock.
Result: $5 billion profit
General Motors And Chrysler
When the U.S. auto industry was in danger of disappearing into oblivion in 2008, the Treasury stepped in with bailouts for General Motors Company (NYSE: GM) and Chrysler to the tune of $50.7 billion and $10.7 billion respectively.
In the case of GM, the government received a near-60 percent stake in the restructured company. The Treasury sold the last of its GM shares in late 2013.
Most of Chrysler's bailout money, meanwhile, was paid back by the end of 2011, when the government sold its final 6 percent stake in the company to Italian automaker Fiat.
Result: $12.7 billion loss
The majority of the remaining 900-plus recipients of bailout funds were banks.
The largest bailout recipients were Bank of America Corp (NYSE: BAC) and Citigroup Inc (NYSE: C), which each received $45 billion in disbursements from the Treasury. The Treasury eventually netted $4.5 billion in profit from Bank of America and $13.4 billion in profit from Citigroup in dividends and proceeds.
These types of profits were typical for the Treasury when it came to the bank bailouts, despite the fact that several smaller banks, such as CIT Group ($2.3 billion bailout), declared bankruptcy and never repaid their debts.
From the bailouts of Bank of America, Citigroup, JPMorgan Chase, Wells Fargo, and GMAC (now Ally Financial) alone, taxpayers netted a profit.
Result: $23 billion in profit
The Grand Total
When all was said and done, the U.S. Treasury coughed up $613 billion in bailout funds.
Result: $46.2 billion profit (and counting)
Disclosure: At the time of this writing, the author had no position in the equities mentioned in this report.
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