The Treasury Department said today the U.S. government’s financial rescue programs will earn a combined profit of about $24 billion, based on current market conditions.
It doesn’t take too much skepticism to think about the ways in which the Governments assessment of gains and losses may fall short. Consider Obama Treasury Celebrates Bailout Profits While Ignoring Costs, Legacy which summarizes
Treasury did not, however, commemorate the hundreds of billions of dollars in taxpayer aid left to be repaid; the billions the Troubled Asset Relief Program will ultimately cost taxpayers; the extraordinary actions of the Federal Reserve and Federal Deposit Insurance Corporation that made Treasury’s bank profits possible; or the fact that the entire enterprise of pumping taxpayer cash into a financial system rife with unrecognized losses will likely be remembered as a “dismal failure,”
The article goes on to highight outstanding TARP loans to auto companies and insurance companies, $267B in outstanding FDIC insured debt, QE2 and the fact that 9 out of 10 new home loans are guaranteed by the Government.
I’ve always thought one of the most under-appreciated costs of the bailout and 0% interest rates was the costs to Savers. The Fed’s Zero Interest Rate Policy (ZIRP) has had damaging effects on Savers in a broad fashion.
Lower overall interest rates from treasuries to corporates to munis have reduced the income available for bond owners. It’s hard to quantitatively measure the impact of this. We can, however, estimate the cost that effectively 0% interest has had on savers via the pool of Money Market Funds. My back of the envelope analysis:
- From November 2008 to date, Total Money Market Assets have averaged $3.263 Trillion (Investment Company Institute).
- Just prior to November 2008, the average yield on 1mo CDs was 2.07%. Today it stands at 0.13% (Bankrate.com).
- At 2.07%, Savers would have accumulated $164 Billion in interest on their Assets. With rates at 0.13% today, a conservatively guestimated weighted average yield over that period is 0.75% This has netted Savers only $59.74 Billion or $100 Billion less than would have otherwise been the case.
Of course, the longer that ZIRP continues, the more it will continue to cost Savers on their currently $2.7 Trillion in Money Market Savings, earning a measly 0.13%.
Make no mistake, the Government bailouts in no way collectively benefited tax payers when you consider all the costs and benefits. While some costs and consequences are unknown and yet to be entirely borne out, the cost to Savers has been clear.