When the government gave $700 billion to banks to keep them from collapsing when the economy teetered on the brink in 2008, the decision was controversial. Many decried the use of taxpayer money being used to bail out banks due to their own bad bets, and more than a few economists and pundits predicted that the infusion would be a loss. Now, at least some of those naysayers have been proven wrong with the news that some Citigroup stock shares that the government got in exchange for its largesse have been sold to the tune of $2.25 billion. In addition, the total amount of Citi common stock sold by the government equals $16.4 billion, according to the Treasury Department.
While a couple billion dollars might seem like a serious chunk of change, it's worth remembering that Citi initially got $45 billion as well as government guarantees against losses up to many times that amount. But in hindsight, economists say this was the only feasible choice at the time.
"It was definitely the right thing for the government to provide broad-based capital injections into the banks at the height of the crisis," Douglas Elliott, a fellow in economic studies at Washington, D.C.-based think tank the Brookings Institution, said in an e-mail to WalletPop. "It was crucial to avoiding a true financial meltdown that would have created much more damage, including a still-worse recession, or even a depression. The public would be facing substantially higher unemployment and worse federal deficits now if that had happened. Awful as the recession was, it could easily have been even worse."
In further good news about the much-maligned TARP program, the Wall Street Journal reports that the government announced today some revised calculations on the total cost of the bailouts. Instead of being the hundreds of billions initially projected, the White House now says the cost is more likely in the under-$50 billion range; Press Secretary Robert Gibbs says that number could drop even further as more of the Treasury's investments in troubled companies turn a profit as the economy recovers.
Treasury earns back some of its TARP investment