Where Did All the Bailout Money Go?

Now that several banks have repaid taxpayers about $70 billion of the $700 billion bank bailout know as TARP, a common question is: "Great, now where's the other $630 billion?"

This is a good question, and the answer isn't as clear-cut as many may assume.

See, not all of the money was simply doled out to banks. A lot of the $700 billion that was appropriated either hasn't been spent, or went to programs such as housing relief, auto company assistance, and credit market unclogging.

Using data from the Treasury's official bailout website -- financialstability.gov -- here are the latest figures:

Segment

Amount

Money Still Held by Banks  

$172.6 billion 

Homeowners (mortgage modifications)

$18.3 billion   

AIG

$69.8 billion   

Auto Industry

$85 billion   

TALF ( Term Asset-Backed Securities Loan Facility)

$20 billion   

Already Repaid

$70 billion

Uncommitted/Not Yet Spent

$264.3 billion

Total:

$700 billion

Now, some programs have money committed to them but haven't started yet. For example, up to $100 billion was committed to a public-private investment fund designed to buy toxic assets directly from banks. But this program is having trouble getting off the ground and parts may never be implemented at all. Another $15 billion was allocated to purchase small-business loans, but hasn't started either.

Furthermore, the mortgage modification program has a total allocation of $50 billion, compared to the $18.3 billion already spent. TALF has a total commitment of $55 billion, compared to the $20 billion currently used. Take all of these into consideration (including the repaid TARP funds), and there's probably around $150 billion in actual uncommitted money left.

On the banking side, $95 billion of the $172.6 billion still in banks' hands sits with Citigroup (NYSE: C  ) and Bank of America (NYSE: BAC  ) . Wells Fargo (NYSE: WFC  ) has another $25 billion, and the rest sits with hundreds of smaller banks. Last week, 10 of the 19 largest banks, including Goldman Sachs (NYSE: GS  ) , JPMorgan Chase (NYSE: JPM  ) , American Express (NYSE: AXP  ) , and Morgan Stanley (NYSE: MS  ) , returned their bailout proceeds in full.

Great! What now?
The question now is how much more money we can expect to be repaid. The honest answer is no one really has a clue, but we can at least make a few assumptions.  

Citigroup's $50 billion is now primarily in the form of common stock. That makes it easier to turn the investment into cash, but causes its value to become susceptible to the mood of the market. I wouldn't be surprised if the government started selling small chunks of shares in the months ahead, if only to reassure the world that it doesn't plan on overstaying its welcome.

Bank of America's $45 billion is all in preferred stock, so it has to pay the Treasury back directly. Right now, there's almost no chance of that happening. At today's prices, raising $45 billion in extra equity would mean a 50%-60% dilution on top of the dilutive tsunami that shareholders already experienced after the stress test results. Until the economy radically improves, B of A will be firmly suckling the government's teat. There's no getting around that.

Wells Fargo shouldn't have any problem repaying taxpayers, but it'll take awhile. It's in an awkward position of being an earnings machine thanks to its low cost of capital, but still holding a fair amount of questionable real estate assets.

As for the auto industry, repayment depends on how quickly sales rebound and how efficiently management can cut costs and streamline operations. I've expressed my doubt in this area, and wouldn't count on miracles.

Taxpayers have committed $50 billion for a 60.8% equity stake in General Motors. For comparison's sake, GM's market cap hit an all-time high in 1999 (during an epic stock bubble) at about $57 billion. This isn't perfectly comparable because of an altered capital structure, but it indicates that taxpayers probably will recover only a fraction of their investment.

AIG is the big problem child here. The 79.9% equity stake taxpayers own is worth beans. The repayment plan relies on selling business units that are still healthy. In any other economic period, this would be a cinch. In today's world, it's pretty much a joke because buyers are scarce, if not nonexistent.

At best, it can sell assets for fire-sale prices and hope the total comes remotely close to what it owes us. Ideally, we'd wait for the economy to rebound before selling assets in order to get reasonable prices, but this is constrained by the politics of the matter -- people want to see immediate results.  

Moving on
So, what happened to the $700 billion bank bailout? A lot of it was never spent; a lot of it is already being returned; and a lot of it was sunk into companies that'll struggle to pay it back. Is it ideal? Nah. But, hey, three months ago, many didn't think we'd ever be talking about banks repaying taxpayers at all, let alone in full.

For related Foolishness:                                                                      

Fool contributor Morgan Housel doesn't own shares in any of the companies mentioned in this article. American Express is a Motley Fool Inside Value selection. The Fool owns shares of American Express. The Fool has a disclosure policy.


Read/Post Comments (25) | Recommend This Article (75)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On June 19, 2009, at 2:59 PM, ByrneShill wrote:

    Citigroup's market cap is 17 bilions. I very highly doubt the govt can sell its stake for 50 bilions :)

  • Report this Comment On June 19, 2009, at 5:31 PM, jbrt wrote:

    You forgot Hartford HIG , just to name one of many ,

  • Report this Comment On June 19, 2009, at 5:36 PM, steveherb wrote:

    Don't ask me where the money went pal. I'm in foreclosure.

  • Report this Comment On June 19, 2009, at 5:37 PM, divinghiker wrote:

    Glad to see comments about AIG repaying much of its debt. What's hidden in AIG figures is how many billions were paid to a number of banks, including those listed, via AIG. Some big names were mentioned on March 15 when AIG disclosed counterparties to Credit Default Swaps, Municipality counterparties, and Securities Lending counterparties. It's nice for the banks that they don't have to show these additional funds as part of their bailout, and instead letting AIG get beat up for it.

  • Report this Comment On June 19, 2009, at 7:21 PM, theirhouse wrote:

    pubic-private investment ? Really?

  • Report this Comment On June 19, 2009, at 8:15 PM, modeltim wrote:

    big effing rip-off. Too big to fail?...then too big to exist!

    Close em, audit em, restructure them and "anti-monopolize" either by nationalization or restructuring into smaller regional entities. Things are gonna get a lot worse before they get better!

  • Report this Comment On June 19, 2009, at 9:15 PM, xetn wrote:

    Taxpayers have not committed a penny to auto bailouts, or any other bailout, the government has committed the taxpayers. Please stop your stupid insinuation that we, the taxpayers are agreeing to any of this nonsense. We are being forced into this garbage. Do you seriously think anyone had a vote?

  • Report this Comment On June 19, 2009, at 9:17 PM, Julia1234 wrote:

    Most of these politicians are inept as well as corrupt. If it was such an "emergency", why isn't it all in use???? And what about the follow up bail outs? Scary people we have wielding such power these days.

  • Report this Comment On June 19, 2009, at 9:54 PM, rd80 wrote:

    Morgan,

    Nice run down. There are also loan backstops to Citi and BAC as part of the program. The government backstop is split between TARP, FDIC and the Fed.

    As far as I know, the government hasn't paid anything for those guarantees yet, but is potentially on the hook for something like $23 billion of losses between the two banks and another $330 billion or so of non-recourse loans from the Fed all backing asset losses for C and BAC. These guarantees were part of the second TARP trip those two banks made.

    Since the banks probably didn't put a lot of good paper in those pools, it's safe to assume taxpayers will end up covering at least some loan losses.

  • Report this Comment On June 19, 2009, at 10:09 PM, NoMoeMoney wrote:

    You forgot to mention how much has been stolen or pilfered by corruption in the process. When you have this kind of money moving around someone always finds a way to stick some in their pockets.

  • Report this Comment On June 20, 2009, at 1:11 AM, Xciteddon wrote:

    Out of the 70 billion that was paid back, how much interest was paid? Where did that go?

    As far as AIG, There should have been a federal investigation into that company. There has been some kind of fraud going on there! The people who run that company must have had a lot of government pull to get this far with just a slap on the wrist.

    How does the federal government expect to get all the money it put into GM if they are in bankruptcy? How can we expect it? And if they downsize the company and sell off bits and pieces of it, how can they ever expect anything to come back in the form of repayment? The labor unions are going to suck everything up right away anyway.

  • Report this Comment On June 20, 2009, at 2:06 PM, Gardnermiles wrote:

    How can we expect any kind of recovery when we support foreign manufacturer's over our own? We are keeping our own unemployed by purchasing foreign goods. Sorry grandson: I just had to buy that foreign car cause it was a little cheaper. Sorry wasn't thinking we better keep some manufacturer's around here; so you could have a job.

  • Report this Comment On June 20, 2009, at 2:13 PM, Gardnermiles wrote:

    It's O'K. son your uncle is the General Manager of the aircraft plant over in Hong Kong. Once we contact him and get your airplane fare together; you can be on your way. See you soon Uncle Clark.

  • Report this Comment On June 21, 2009, at 3:45 PM, cdenny6 wrote:

    Excellent article.

    Good comments.

    We all need to stay on top of matter - for years!!!

  • Report this Comment On June 21, 2009, at 7:08 PM, MORK000 wrote:

    Where was the goverment before this mess started while we lost 800 billion? you got to be kidding that this new money is going to bail us out.

  • Report this Comment On June 26, 2009, at 2:09 PM, pbealtx wrote:

    one of my brothers is still asking me where the repayment money goes. i tried to say the money was created out of thin air so when it's repaid nothing happens except a credit to accounts receivable and a debit to "cash" but I'm not sure how the bailout money was originally accounted for.

  • Report this Comment On June 26, 2009, at 2:57 PM, DiscoFinance wrote:

    The SEC just requested a copy of the new movie about this called Stock Shock. Finally doing something pro-active!!!! Article here:

    http://satwaves.com/blog/2009/06/26/sec-investigating-illega... Go Matt and Stock Shock!!

  • Report this Comment On June 26, 2009, at 4:09 PM, gloryofarioch wrote:

    I'm glad to see the Fool publishing these sorts of articles again. To enrich, inform, and amuse, right?

  • Report this Comment On June 26, 2009, at 4:15 PM, lcorsi wrote:

    Morgan

    Great summary. I'm keeping it for future converstion with my peer.

  • Report this Comment On June 26, 2009, at 5:49 PM, rse0506 wrote:

    > Ideally, we'd wait for the economy to rebound before selling assets in order to get reasonable prices, but this is constrained by the politics of the matter -- people want to see immediate results.

    I recall that one of the major rationales for the govt getting involved was that it (supposedly) had a much longer holding time than all other market participants - it could wait out the recession and realize "hold-to-maturity" values on toxic assets.

    It sounds like you're saying that "politics" is going to shoot that rationale down.

    Scott

  • Report this Comment On June 26, 2009, at 6:38 PM, sn322b wrote:

    I just read an article by Matt Taibbi in the latest Rolling Stone magazine about Goldman Sachs and the bailout. I suggest that all fools read this and give it their friends, parents, children, chance folks on the street. Terrifying. The game is apparently much more rigged than any of us (even the more paranoid among us) might have expected.

  • Report this Comment On June 26, 2009, at 8:25 PM, damasterwc wrote:

    so please tell me exactly where the $1 trillion per month given to various and unnamed financial companies has gone? http://www.youtube.com/watch?v=PXlxBeAvsB8

  • Report this Comment On June 28, 2009, at 1:25 AM, jfrankh57 wrote:

    I said it before and I guess I'll keep repeating myself: If one of the salient points in the TARP was to ease credit, why is it so hard to get credit? I still hear it is hard to get a loan. I keep hearing you need a credit score north of 700 just to be looked at. Why has it been so hard to look at a person's responsiblility? Could it be a symptom of a society where personal responsibility is not recognized and is easily abrogated? My Grandfather grew up in a country where a man's word was good. Yes, there are many things we as a society have struggled with, then and now, but somehow we have been managing to claw up out of the muck. But, somewhere along the way, we lost more important parts of ourselves. Things such as integrity and self reliance and responsibility. Now I guess, the government will become the "nanny state" and they will become "responsible." I wonder if I can find a place out in the hill country to "hideout" from my nanny?

  • Report this Comment On June 28, 2009, at 12:46 PM, TrustIsEarned wrote:

    A good summary. All in all, I think we can be reasonably pleased with how the Obama Administration is managing the mess that new president inherited. We're not out of the woods economically, but we're in a lot better shape than we could have been at this stage of the recession.

  • Report this Comment On June 28, 2009, at 4:13 PM, CITIZENZ wrote:

    Great article. It is about time someone is trying to measure results. Thanks . My comment are the same as #4, #7, #9, #11, however I completely disagree with comment O/bama administration is managing the the inherited mess very well. I believe the original Tarp Actions of $350 billion have been the most responsible for stablizing the banks. With those funds the economy is recoverying on its own if the government would stop messing. The rest of the bailout is causing considerably more debt than it is worth.

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