Our focus is on capital budgeting (CB). When you look at the TARP program (even

Question

Our focus is on capital budgeting (CB). When you look at the TARP program (even though it was originally designed to buy toxic assets from banks) it is a CB project for Federal Government. We, as taxpayers, invested in banks hoping to have a positive return for OUR MONEY. We also hope that the Treasury dept. has done its analysis right and we have a positive NPV (net present value) project. So far we have gotten large portion of the money back. Do you think this was a right decision? Please discuss.

Explanation / Answer

The Troubled Asset Relief Program(TARP)

Our economy is stronger today because of strategy adopted and 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. These are 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 overall positive financial return for taxpayers in terms of direct fiscal cost. These estimates are based on gains already realized and on a range of different measures of cost and return for the remaining investments outstanding. These estimates do not include the full impact of the crisis on our fiscal position. And they do not include the cost of the tax cuts and emergency spending programs passed by Congress in the Recovery Act and after that were critically important to restarting economic growth.

Although the economy is getting stronger, we have a long way to go to fully repair the damage the crisis has left behind. We are still living with the broader economic cost of the crisis, which can be seen in high unemployment, the moderate pace of recovery, fiscal deficits still swollen by the crisis, the remaining constraints on access to credit, and the remaining challenges in the housing market.

Treasury’s TARP investments and overall stake in AIG, purchase of mortgage-backed securities, and Money Market Fund guarantee program are each currently expected to realize an overall positive return for taxpayers. Additionally, the Federal Reserve is remitting significant excess earnings to the Treasury. There are a range of estimates on the ultimate cost of TARP’s foreclosure prevention programs and stabilizing Fannie Mae and Freddie Mac, which will depend upon future housing market conditions and other factors. However, the overall positive returns from the other financial stability programs are currently expected to more than offset those costs, according to the latest estimates.

The government is now expected to at least break even on its financial stability programs and may realize a positive return.

But the damage would have been far worse, and the costs far higher, without the government’s forceful response.

Related Questions

Navigate

• Browse (All)
• Browse O
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.