The Financial Crisis Response - In Charts


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This week, the U.S. Department of the Treasury released its latest cost estimates for the Troubled Asset Relief Program (TARP), which was only one part of the government’s broader effort to combat the financial crisis. These charts provide a more comprehensive update on the impact of the combined actions of the Treasury, the Federal Reserve, and the Federal Deposit Insurance Corporation (FDIC).

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The Financial Crisis Response - In Charts

  1. The Financial Crisis ResponseIn ChartsApril 2012
  2. Response Cost Reform Challenges IntroductionT his week, the U.S. Department of the Treasury released its latest cost estimates for the Troubled Asset Relief Program (TARP), which was only one part of the government’s broader effort to combat the financial crisis. These chartsprovide a more comprehensive update on the impact of the combined actions of the Treasury, the Federal Reserve, andthe Federal Deposit Insurance Corporation (FDIC).*Collectively, these programs—carried out by both a Republican and a Democratic administration—were effective inpreventing the collapse of the financial system, in restarting economic growth, and in restoring access to credit andcapital. They were well-designed and carefully managed. Because of this, we were able to limit the broader economic andfinancial damage. Although this crisis was caused by a shock larger than that which caused the Great Depression, wewere able to put out the financial fires at much lower cost and with much less overall economic damage than occurredduring a broad mix of financial crises over the last few decades.Our economy is stronger today because of the strategy we adopted and the financial reforms now being put in place.This, in turn, has allowed our financial system to return as an engine for economic growth, jobs, and innovation. Theseare the most important measures of the impact of the financial strategy adopted by the United States.In addition, the latest available estimates indicate that the financial stability programs are likely to result in an overallpositive financial return for taxpayers in terms of direct fiscal cost. These estimates are based on gains already realized andon a range of different measures of cost and return for the remaining investments outstanding. These estimates do notinclude the full impact of the crisis on our fiscal position. And they do not include the cost of the tax cuts and emergencyspending programs passed by Congress in the Recovery Act and after that were critically important to restarting economicgrowth.Although the economy is getting stronger, we have a long way to go to fully repair the damage the crisis has leftbehind. We are still living with the broader economic cost of the crisis, which can be seen in high unemployment, themoderate pace of recovery, fiscal deficits still swollen by the crisis, the remaining constraints on access to credit, and theremaining challenges in the housing market.But the damage would have been far worse, and the costs far higher, without the government’s forceful response.* This document focuses on many actions that made up the coordinated government response but is not meant to provide a complete inventory. In particular, while the Federal Reserve co-ordinates with other government agencies on some actions, it acts independently with regard to monetary policy. U.S. DEPARTMENT OF THE TREASURY
  3. Response Cost Reform Challenges1 This recession was the worst since the Great DepressionReal GDP, percent fall from pre-recession peak Metrics of the ‘07 - ’09 financial crisis, peak-to-trough: 0% = trough -1% 8.8 million -2% jobs lost 2007 - 09 recession $19.2 trillion 2001 recession -3% 1990 - 91 recession 1981 - 82 recession -4% 1980 recession 1974 recession lost household wealth (2011 dollars) -5% -6% Pre-recession 1 2 peak Years since pre-recession GDP peakSource: Bureau of Economic Analysis, Bureau of Labor Statistics, Federal Reserve Flow of Funds. U.S. DEPARTMENT OF THE TREASURY
  4. Response Cost Reform Challenges2 The crisis response helped restart economic growthReal GDP growth, quarterly 2007 2008 Mar. 3, 2009 2009 2010 2011 TALF program launched to help Mar. 23, 2009 revive credit markets PPIP program announced to help revive mortgage finance market Feb. 2009 +3.6% Financial Stability Plan announced +3.8% +3.9% +3.8% Recovery Act signed +3.0% Housing programs announced +3.0% +2.5% +2.3% Jan. 20, 2009 +1.7% +1.7% +1.8% President Obama +1.3% +1.3% takes office +0.4% +0.5% -0.7% -1.8% Jun. 2009 First large banks repay TARP funds GM restructuring Dec. 12, 2007 -3.7% May 7, 2009 Fed establishes first liquidity Large bank stress test results released facility and currency swap lines with other central banks Apr. 2, 2009 G-20 finance ministers announce Mar. 2008 coordinated response to global Bear Stearns collapses financial crisis Jul. 7, 2008 -6.7% FDIC intervenes in IndyMac Bank Sept. 2008 Fannie Mae and Freddie Mac conservatorship -8.9% Lehman Brothers bankruptcy AIG stabilization effort Oct. 3, 2008 TARP financial stabilization package enacted U.S. DEPARTMENT OF THE TREASURYSource: Bureau of Economic Analysis.
  5. Response Cost Reform Challenges3 The crisis response paved the way for retirement savings to recover1,600 16,000 2007 2008 2009 2010 2011 S&P 500 index1,400 14,0001,200 Mar. 2008 12,000 Bear Stearns collapses Sept. 20081,000 Fannie Mae/Freddie Mac conservatorship Retirement fund assets 10,000 Lehman Brothers bankruptcy (billions of 2011 dollars) AIG stabilization effort Oct. 3, 2008 Jun. 2009 800 TARP financial stabilization package passed First large banks repay TARP funds 8,000 GM restructuring Jan. 20, 2009 President Obama 600 takes office 6,000 May 7, 2009 Feb. 2009 Large bank stress test results released Financial Stability Plan announced Apr. 2, 2009 Recovery Act signed G-20 finance ministers announce 400 Housing programs announced 4,000 coordinated response to global Mar. 3, 2009 financial crisis TALF program launched to help revive credit markets 200 Mar. 23, 2009 2,000 PPIP program announced to help revive mortgage finance markets - -Source: Federal Reserve Flow of Funds. U.S. DEPARTMENT OF THE TREASURY
  6. Response Cost Reform Challenges4 The crisis response helped unclog the credit pipes of the financial systemNet percentage of banks easing lending standards, by loan type  The crisis response helped 40 restart the markets that 2006 2007 2008 2009 2010 2011 Mar. 3, 2009 Mar. 23, 2009 provide financing for auto, TALF program launched PPIP program announced to help More revive mortgage finance markets credit card, mortgage, and 20 Feb. 2009 banks easing Financial Stability Plan announced business loans. Recovery Act passed Housing programs announced  For borrowers, it: 0 Jan. 20, 2009 President Obama • Improved credit access takes office • Lowered borrowing -20 costs. How much has the price of credit recovered since the crisis? -40 As measured by the return of yields of asset- backed securities to their pre-crisis levels More Agency banks 100% Jun. 2009 mortgages -60 tightening First large banks repay TARP funds May 7, 2009 Auto loans 99% Large bank stress test Commercial and industrial lending results released -80 Residential mortgages Oct. 3, 2008 Credit cards 99% Consumer credit cards TARP enacted-100Source: Federal Reserve Senior Loan Officer Opinion Survey, Treasury calculations. U.S. DEPARTMENT OF THE TREASURY
  7. Response Cost Reform Challenges5 The crisis response helped support families and businessesThe Treasury Department, the Federal Reserve, and other federal agencies attacked the crisis on multiple fronts so that families could meet their financial needs and businesses could obtain the credit they need to hire and grow. What did it support? Small business Autos Financial markets Consumers Retirement Housing Small businesses  Autos     Financial markets Consumers Retirement Housing Helped support Helped support a Helped restart Helped support Helped protect Helped support companies that crucial credit markets and families that need savers with 401(k) Americans seeking need credit to hire manufacturing stabilize firms that auto, credit card, plans, money to obtain or and grow. industry and save hold deposits and and student loans. market funds, and refinance a American jobs. provide credit. other investments. mortgage, or avoid foreclosure.This chart is intended to illustrate the breadth of the crisis response, but is not meant to be a complete depiction of all the actions taken by the government or their effects.Source: Treasury, Office of Management and Budget. U.S. DEPARTMENT OF THE TREASURY
  8. Response Cost Reform Challenges6 The crisis response helped stabilize the housing market The government’s Conventional 30-year mortgage rates 7 percentefforts helped keep 6mortgage rates low so 5that Americans could 4continue to buy homesand refinance in the wake 3of the crisis. 2 1 0 Jan 08 Jul 08 Jan 09 Jul 09 Jan 10 Jul 10 Jan 11 Jul 11 Jan 12 Since April 2009, loan Cumulative foreclosures and permanent modifications started* 6 million Since April 2009, there have beenmodification programs 5 million permanent loan modifications 5have helped millions of Foreclosure completions 4 Private 2.6mborrowers stay in their modifications 3homes, more than the 2number who have lost HAMP modifications 1their homes to foreclosure. FHA loss mitigation 0 Apr 09 Jul 09 Oct 09 Jan 10 Apr 10 Jul 10 Oct 10 Jan 11 Apr 11 Jul 11 Oct 11 Jan 12* Cumulative HAMP permanent modifications, FHA loss mitigation (such as modifications, partial claims, and forbearance plans), and early delinquency interventions, plus proprietary modifications completed as reported by the HOPENOW Alliance. Some homeowners may be counted in more than one category. Foreclosure completions are properties entering Real Estate Owned (REO) as reported by Realty Trac. This does not include other loss mitigation actions takenunder Treasury housing programs or by the GSEs, such as forbearance plans, short sales, and second lien modifications, which would increase the totals.Source: Federal Reserve, HOPE NOW, Department of Housing and Urban Development. U.S. DEPARTMENT OF THE TREASURY
  9. Response Cost Reform Challenges7 The crisis response saved the auto industry and one million American jobs Auto-industry employmentAccording to 2.5 auto industry workers 2.6mindependent estimates,the rescue of the autoindustry saved more than +231,000one million American jobs. auto jobs sinceSince the rescue, the June 2009 2.4auto industry has addedmore than 230,000 jobs. Mar. 2009The auto industry President Obama rejects restructuring plans from GM and Chrysler, challenging them to developrescue is currently more aggressive plans to return to viability.estimated to cost about Sales of motor vehicles in the U.S.$22 billion, but the cost 2.3 13m 13m 14.5m 12m 10mof a disorderly liquidationto families and businessesacross the country that After June 2009 Post-restructuring of 2008 2009 2010 2011 2012 (annualized average torely on the auto industry GM and Chrysler date)would have been far 2.2higher. Jan 10 11 12 2009Source: Bureau of Labor Statistics, Autodata. U.S. DEPARTMENT OF THE TREASURY
  10. Response Cost Reform Challenges8 The crisis response curbed the damage and helped restart the economy Jobs are returning. Total civilian employment, percentage change from pre-crisis peakDespite the size of the +20%financial shock, the Jobs growth resumed much fasterspeed and force of the than average of other recent financial crises in advanced economiesresponse helped restore +10%job growth more quicklythan in most other U.S. 0% 2008-09recent crises. financial crisis There is still more Average of 5 most recent advanced economy financial criseswork ahead, but -10% Spain 1974businesses have... Norway 1986 Finland 1989• Added workers over Sweden 1989 -20% the last 25 straight U.S. Japan 1991 Great Depression months.• Created 4.1 million -30% Pre- 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 jobs. crisis peak Years since pre-crisis employment peakSource: Treasury analysis based on OECD and U.S. Census data. U.S. DEPARTMENT OF THE TREASURY
  11. Response Cost Reform Challenges9 How much were the financial stability programs expected to cost?Projections of potential cost of financial stability programs “ Bank bailout could cost Estimated cost of TARP $4 trillion $341 billion Office of Management and Budget, August 2009 January 27, 2009 Estimated cost of TARP $356“ U.S. pledges top billion $7.7 trillion Congressional Budget Office, March 2009 to ease frozen credit Bloomberg  November 24, 2008 IMF March 2009 estimate of the cost of U.S. response to ‘08-’09 crisis 12.7% of GDP “ Fannie, Freddie bailout could cost taxpayers ($1.9 trillion in 2011$) $1 trillion The Christian Science Monitor June 18, 2010 Estimated total potential exposure from financial rescue $24 trillion Special Inspector General for TARP, July 2009Source: See Notes. U.S. DEPARTMENT OF THE TREASURY
  12. Response Cost Reform Challenges10 In fact, taxpayers may realize a gainProjections of financial stability program returns/costs, based on latest estimates Overall, the government is now expected to at least break even on its financial stability programs and may realize a positive return. +$179b Treasury’s TARP investments and Federal Reserve overall stake in AIG, purchase of +$1b excess Treasury TARP Treasury money earnings** mortgage-backed securities, and investment programs Other market fund Money Market Fund guarantee Treasury guarantee program and additional program are each currently expected to AIG holdings realize an overall positive return for +$2b taxpayers. Additionally, the Federal -$16b Reserve is remitting significant excess CBO estimate +$25b -$28b earnings to the Treasury. -$46b Treasury Mortgage- OMB projection of net OMB estimate Backed Securities cost through FY2022 TARP housing There are a range of estimates on the Purchase Program programs ultimate cost of TARP’s foreclosure prevention programs and stabilizing Fannie Mae and Freddie Mac, which -$151b Fannie Mae/ Current net cost will depend upon future housing Freddie Mac market conditions and other factors. conservatorship** Treasury currently has a net investment of $151b in Fannie Mae and Freddie Mac, which is expected to be reduced over time as those firms generate positive earnings. OMB projects However, the overall positive returnsthe eventual cost to fall to $28b by fiscal year 2022. This estimate however could change materially depending on future changes in home prices, enterprise market share, and other from the other financial stabilityoperating assumptions.** Treasury estimates. Based on the President’s FY2013 Budget, the Federal Reserve has already remitted $82 billion in excess earnings – above what would be expected in normal programs are currently expected totimes – to the Treasury through fiscal year 2011. Total excess earnings from the Federal Reserve to be remitted to the general fund are currently forecast to reach $179 billion through more than offset those costs,fiscal year 2015. The amount of future Federal Reserve earnings is uncertain and will depend on future financial, economic, and market conditions. according to the latest estimates.Note: Estimates are most recently available as of publication and are subject to revision based on future market conditions. Chart includes income and costs for the financial stabilityprograms only. It does not include figures related to the Recovery Act or tax revenues lost from the crisis.Source: Treasury, Office of Management and Budget. See Notes for further details on calculations. U.S. DEPARTMENT OF THE TREASURY
  13. Response Cost Reform Challenges11 The projected cost of TARP has fallen significantlyProjections of TARP programs and additional Treasury AIG holdings, gain (cost)+$50 billion 50 Investment programs only  The projected cost of (excludes housing)*  POSITIVE RETURN +$2b 0 TARP has fallen significantly  LOSS over the last three years. -50 -$60b TARP’s investment TARP programs, together with -100 overall Treasury’s additional stake in -150 AIG, are currently expected 83% to realize a positive return -200 decrease in projected for taxpayers. TARP costs since -250 Aug. 09 The remaining projected cost is primarily -$291b -300 attributable to support for struggling homeowners; -$341b -350 these funds were not intended to be recovered.-$400 billion loss -400 Aug. 2009 Feb. 2010 Feb. 2011 Feb. 2012 Apr. 2012 TARP programs have Mid-session Review Presidents Budget Presidents Budget Presidents Budget estimate* This represents the TARP investment programs and includes Treasury’s additional AIG common stock holdings valued as of February received three straight clean29, 2012. It excludes foreclosure prevention funds, which were not intended to be recovered ($46B). audits.**** GAO annually reviews Treasury TARP cost estimates.Source: Treasury, Office of Management and Budget. U.S. DEPARTMENT OF THE TREASURY
  14. Response Cost Reform Challenges12 The bank investment program helped stabilize the financial system Outstanding bank program investments, principal Returns as of April 12, 2012 $300 billion 300 +$19b  TARP’s bank positive $264b investment programs $245b return Realized 250 income helped stabilize the $34b financial system by 200 providing capital to more than 700 banks throughout the country. 150  More than 450 were Repayments $230b small, community banks. 100 Federal Reserve regulatory minimum on stress tests  Treasury is continuing to wind down those 50 investments, which have already realized a - Oct Apr Oct Apr Oct Apr Oct Apr Disbursed Recovered significant return for 08 09 09 10 10 11 11 12 taxpayers.Note: About $2b of the funds invested in banks refinanced into the SBLF program. This A total of 348 banks remain in TARP’s Capital Purchase Program and 82reflects less than 1% of the total TARP funds invested in banks. banks remain in TARP’s Community Development Capital InitiativeSource: Treasury. U.S. DEPARTMENT OF THE TREASURY
  15. Response Cost Reform Challenges13 The crisis response helped prevent the collapse of the financial system and stabilized AIGTotal commitment (Treasury and Federal Reserve), outstanding investment, and value of ownership stake in AIG,billions of dollars $182b Based on current market prices, the government is expected to realize a gain on its AIG investment 76% of maximum committment returned or cancelled to date $61b Interest/ Fees/Gains Realized to Date $44b $12b Current Value of Remaining Government Stake $49b Max. commitment Remaining investment outstanding Remaining Investment Outstanding Value of Remaining stake Value of remaining Stake March 2009 As of March 2012 As of March 2012Source: Treasury, Federal Reserve. U.S. DEPARTMENT OF THE TREASURY
  16. Response Cost Reform Challenges14 The financial industry is less vulnerable to shocks than before the crisisCapital in bank holding companies as a Short-term wholesale funding as a percentpercentage of risk-weighted assets of assets, 4 largest U.S. banks Banks have added14 percent 40 percent nearly $400 billion in 35 fresh capital as a12 Other Tier 1 cushion against Tier 1 Common 30 unexpected losses and10 financial shocks. 25 8 20 Banks are also less 6 reliant on short-term Federal Reserve regulatory minimum on stress tests 15 funding, which can 4 disappear in a crisis and 10 leave them more 2 vulnerable to panics. 5 0 0 2002 03 04 05 06 07 08 09 10 11 2002 03 04 05 06 07 08 09 10 11 Q1 Q1Source: Federal Reserve form Y-9C, Treasury calculations. U.S. DEPARTMENT OF THE TREASURY
  17. Response Cost Reform Challenges15 The U.S. banking system is proportionally smaller than that of other advanced economiesEven with the Total assets of commercial banks, percent of GDPconsolidation of some of 600%the weakest players during United Kingdomthe crisis, the United 500%States has... Switzerland• the least concentrated Netherlands banking system of any 400% France major economy. Sweden Belgium• the smallest banking 300% system relative to the size of its economy. The new legal tools 200% Canada Japan Germanyestablished by the Dodd- ItalyFrank Act mean that United States 100%regulators will be betterable to dismantle andresolve large financial 0% 0% 100% 200% 300% 400% 500% 600%institutions if necessary. Total assets of 4 largest commercial banks, percent of GDPSource: BankScope, IMF, Federal Reserve Flow of Funds. U.S. DEPARTMENT OF THE TREASURY
  18. Response Cost Reform Challenges16 The economy still has far to go to fully recover from the financial crisisUnemployment rate, percent of the labor force12 percent 12 Recessions  Unemployment 10 Unemployment has fallen, but it still 8 rate 6 remains high.  Long-term 4 unemployment rate (27+ weeks) 2 0  Jan 2006 07 08 09 10 11 12 Real output gap  15 $15 trillion Real potential GDP (2005 dollars) 5.5%  Economic output 14 output gap Recessions in 2011Q4 remains well below 13 Real GDP (2005 dollars) its potential. 12 11 10 00 01 02 03 04 05 06 07 08 09 10 11Source: Bureau of Labor Statistics, Congressional Budget Office. U.S. DEPARTMENT OF THE TREASURY
  19. Response Cost Reform Challenges17 The longstanding financial difficulties facing households persistHousehold debt, percent of disposable income160 percent  Household debt is140120 Recessions down relative to income,100 but a large overhang of 80 debt remains. 60 40  20  0 1980 Q1 85 90 95 00 05 10  Real median household income $ 60,000 Median household Recessions 1999: $53,252 income has declined 55,000 over the last decade. 50,000 2010: $49,445 45,000 40,000 1967 72 77 82 87 92 97 02 07Source: Federal Reserve Flow of Funds, U.S. Census. U.S. DEPARTMENT OF THE TREASURY
  20. Response Cost Reform Challenges18 The housing market remains a challengeInventory of vacant homes for sale only 2.5 million Recessions  Inventories of 2.0 unsold homes are 1.5 declining, but slowly. 1.0 The overhang from the 0.5 crisis continues to 0 weigh on prices. 2004 05 06 07 08 09 10 11 Q1 New single-family home sales  1.6 million 1.4 million Jul. 2005 Recessions New home sales 1.2 are stabilizing, but the 0.8 313,000 Feb. 2012 housing market remains weak. 0.4 0 Jan 04 05 06 07 08 09 10 11 12 2003Source: U.S. Census. U.S. DEPARTMENT OF THE TREASURY
  21. Response Cost Reform Challenges19 The federal budget deficit must be reduced to begin paying down debtCauses of the difference between projected and actual cumulative budget surpluses/deficits, fiscal years 2001 - 2011 $8 trillion 8 In January 2001, CBO projected Jan. 2001 - Jan. 2009 6 cumulative surpluses would Policies total $5.9 trillion through 2011. -$7 trillion through 2011 4 COSTS NOT DUE TO LEGISLATION 29% (technical & Tax Cuts economic) -$3,000b 2 Other annual appropriations CUMULATIVE -$1,700b  SURPLUS Iraq and Cost of 0 Afghanistan January 2001 - -$1,400b  CUMULATIVE January 2009 59% Medicare DEFICIT policies Part D benefit -$300b -2 Other -$600b Post-January 2009 Cost of post- -4 January 2009 Policies policies -$1.4 trillion through 2011 Recovery Act Instead, cumulative deficits 12% -$800b -6 have totaled $6.0 trillion. Other -$410b December 2010 2001 02 03 04 05 06 07 08 09 10 11 tax deal -8 -$250bSource: Treasury analysis of Congressional Budget Office data. See Notes for more details. U.S. DEPARTMENT OF THE TREASURY
  22. Response Cost Reform ChallengesN NotesChart 1 Bankruptcies,” 17 November 2010. Available at sid=an3k2rZMNgDw&pid=newsarchive“Household wealth” measured as net worth of in the Flow of Funds. Adjusted to 2011 Congressional Budget Office, “A Preliminary Analysisdollars using the personal consumption expenditures Chart 8 of the President’s Budget and an Update of CBO’schain price index. “Average of 5 most recent advanced economy Budget and Economic Outlook”, Mar. 2009, p8. financial crises” includes Spain (indexed to 1974Q2), Available atChart 3 Norway (1986Q4), Finland (1989Q3), Sweden“Retirement fund assets” measured as pension fund (1989Q4), and Japan (1991Q1). Advanced country PresidentBudget.pdfreserves held as assets by households in the Flow of financial crises selected based on Reinhart & RogoffFunds. Adjusted to 2011 dollars using the personal 2009 and indexed to pre-crisis civilian employment Government Accountability Office, Financial Audit:consumption expenditures chain price index. peak based on OECD Outlook data. U.S. employment Resolution Trust Corporation’s 1994 and 1995 data for the Great Depression series comes from the Financial Statements, 1996, p13. Available at http://Chart 4 U.S. Census’ Historical Statistics of the United States: price of credit measured by spread between Colonial Times to 1970, Table A-3.jumbo and conventional mortgages. Office of Management and Budget, President’s Chart 9 FY2013 Budget, “Analytical Perspectives”, p39.Credit cards measured by the 3 year spread-to-swap CNN Money, Available at fixed AAA. bigger.bailout.fortune/ files/omb/budget/fy2013/assets/spec.pdfAutos measured by the 3 year spread-to-swap of International Monetary Fund, The State of Publicprime fixed AAA. Finances: Outlook and Medium-Term Policies After the Chart 10 2008 Crisis, at p17, available at Data reflect latest available estimates in eachChart 7 external/np/pp/eng/2009/030609a.pdf category. “Gain” or “positive return” defined as cash“Auto industry employment” includes all payrolls in received (whether as principal, interest, dividends, orretail motor vehicle and parts dealers, both in the Special Inspector General for TARP, Quarterly Report other) exceeds cash disbursed, regardless of the timingmanufacturing and service sectors. to Congress, July 21, 2009, of collection. reports/congress/2009/White House, “The Resurgence of the American July2009_Quarterly_Report_to_Congress.pdf TARP housing program figures reflect estimates asAutomotive Industry”, June 2011. Available at http:// of February 2012. Office of Management Christian Science Monitor, projections assume that the $46 billion in fundsauto_report_06_01_11.pdf Business/new-economy/2010/0618/Fannie-Freddie- committed through TARP’s foreclosure prevention bailout-could-cost-taxpayers-1-trillion programs to help struggling homeowners will beCenter for Automotive Research, “The Impact on theU.S. Economy of the Successful Automaker spent. Congressional Budget Office projections reflect Bloomberg, U.S. DEPARTMENT OF THE TREASURY
  23. Response Cost Reform ChallengesN Notesa cost of $16 billion for these programs. TARP housing $225 billion in MBS and recovered $250 billion federal budget. Excess earnings reflect earnings onprogram funds are not intended to be recovered. through principal and interest payments, and sales. loans and asset purchases made by the Federal Reserve through extraordinary programs established to The ultimate cost of Fannie Mae and Freddie Mac mitigate the financial crisis. Treasury assumes earningsattachments/03-28-2012TARP.pdf conservatorship, which was necessary to keep will converge to normalized levels by fiscal year 2015. mortgage credit available in the wake of the crisis, will The Federal Reserve generates significant income onTARP investment programs and additional depend on housing market conditions over time as its assets during “normal” times, the majority ofTreasury holdings in AIG reflect market values and well as how the agencies are wound down. The $28 which it remits to Treasury. For example, in 2006,realized gains as of February 29, 2012. The estimated billion amount is the net cost to Treasury through prior to the financial crisis, the Federal Reservelifetime return of $22 billion on TARP’s bank 2022 as projected by the Office of Management and remitted $30 billion of such earnings. To estimateinvestment programs and more than $2 billion return Budget for the purposes of the President’s FY2013 excess earnings, Treasury calculates a normalized pathon TARP’s credit market programs are expected to Budget. The current net cost is $151 billion. Fannie of earnings from 2006 through 2015. Treasurymore than offset the $22 billion expected cost of the Mae and Freddie Mac’s losses are primarily the result assumes earnings would have increased at a uniformauto industry rescue. Treasury’s investment in AIG of loans written before the crisis. OMB’s estimate rate from 2006 to the level projected by the(which includes both TARP and non-TARP shares) is assumes that Fannie Mae and Freddie Mac will President’s FY2013 Budget for fiscal year 2015. Theexpected to at least break even at current market generate positive earnings from the run off of their amount of future Federal Reserve earnings is uncertainprices. See the latest 105(a) report for further details more conservative post-crisis book of business to help and will depend on future financial and economicon TARP cost estimates: pay back taxpayers. conditions.initiatives/financial-stability/briefing-room/reports/105/Documents105/March%2012%20Report%20to% Treasury’s estimate of Federal Reserve excess The FDIC currently expects that fees paid by20Congress.pdf earnings is based on calculations from the participating institutions will cover any losses President’s FY2013 Budget, released in February associated with its bank debt insurance program put 2012. The Federal Reserve has already remitted $82 in place during the crisis, known as the TemporaryTreasury money market fund guarantee billion in excess earnings – above what would be Liquidity Guarantee Program (TLGP). Any excesspurchase program reflects realized gains as of the expected in normal times – to the Treasury through proceeds from TLGP are remitted to the FDIC’s Depositclose of the program in September 2009. Treasury fiscal year 2011. Total excess earnings from the Insurance Fund (DIF). The DIF, which helps protectincurred no losses under this program and earned Federal Reserve expected to be remitted to the general savers, is funded through assessments on insuredapproximately $1.2 billion in participation fees. fund are currently forecast to reach $179 billion depository institutions. The FDIC has not drawn upon through fiscal year 2015. The amount of future its Treasury line of credit for the DIF. Federal Reserve earnings is uncertain and will dependTreasury mortgage-backed security program on future financial and economic conditions. Chart 11reflect realized returns as of the close of the winddown of the program in March 2012. Those positive Methodology: Treasury estimates reflect “excess” See the latest 105(a) report for further details on TARPreturns totaled $25 billion. Overall, Treasury invested cost estimates: earnings from the Federal Reserve applied to the U.S. DEPARTMENT OF THE TREASURY
  24. Response Cost Reform ChallengesN Notesfinancial-stability/briefing-room/reports/105/Documents105/March%2012%20Report%20to%20Congress.pdfChart 13See the latest 105(a) report for further details on TARPcost estimates: 15Four largest U.S. banks by assets are JPMorgan Chase,Bank of America, Citigroup, and Wells Fargo.Chart 19Based on data from three annual CongressionalBudget Office publications: the Budget and EconomicOutlook, the update to the Outlook, and CBO’sestimate of the President’s Budget. “Technical andeconomic” factors include all changes in deficitprojections not due to the cost of new legislation,including updates to economic and demographicprojections. “Post-January 2009 policies” only reflectsthe effect of policies, including temporary policies,through 2011. Does not reflect the deficit reductionproposed in the President’s FY2013 Budget goingforward. Numbers may not sum due to rounding. U.S. DEPARTMENT OF THE TREASURY