For mysterious reasons, the media insists on spreading the government meme (apparently, since both parties were complicit, neither bothers to dispute it) that the government made money on TARP. Today’s Times for example:
Sure, the bank portion of TARP has been profitable so far. The Treasury Department estimates that it will make almost $22 billion from its bank support programs. That includes an estimated $3 billion loss from the smaller banks’ paper.
The government lent money to the banks at extremely low interest. The banks loaned it back at higher interest, and pocketed the difference. The government made money only if one disregards the interest payments made to the banks, which is absurd given the circumstances:
Because the US government is lending money to the big banks at near-zero interest rates. And the banks are then turning around and lending that money back to the US government at 3%-4% interest rates, making 3%+ on the spread. What's more, the banks are leveraging this trade, borrowing at least $10 for every $1 of equity capital they have, to increase the size of their bets. Which means the banks can turn relatively small amounts of equity into huge profits–by borrowing from the taxpayer and then lending back to the taxpayer.
Don't you wish the government would offer the 99% that kind of deal? Actually, it might make sense if it did, since it might stimulate the economy a bit. But free money is not for us peons.