The government’s bank bailout program officially expired on Oct. 3, and many Americans are now taking stock of how the nearly trillion-dollar program fared. In this week's podcast, Paul Kiel and Karen Weise join us to discuss the failure and success of the program.

Kiel and Weise explain the difficulty in quantifying the bailout and why it's impossible to say at this point what the final cost will be.

Kiel notes what is supposed to happen when a bank fails to meet its government payment and what is in store for Fannie Mae and Freddie Mac moving forward. Weise explains how the largest program in the bailout is actually expected to make money.

ProPublica has been keeping tabs on every dollar spent on bailout recipients. Check out all of Kiel's bailout reporting at ProPublica's Eye on the Bailout and Weise's latest report The Bailout Yearbook: The Stars and the Slackers.

Transcript:

[Intro music]

Mike Webb: [0:10] Hi, I'm Mike Webb, and welcome to the ProPublica Podcast.

[0:14] The bailout, also known as the Troubled Asset Relief Program or TARP, expired on October 3rd. Since it's become something of a political football lately, ProPublica decided to tackle the issue with a scorecard on how the program has performed.

Joining us today is reporter Paul Kiel, who has been leading our bailout coverage since the program began two years ago, and Karen Weise, who wrote "The Bailout Yearbook: [0:30] The Stars and the Slackers." Welcome to the podcast.

Karen Weise: [0:42] Thanks.

Paul Kiel: [0:44] Thank you.

Mike: [0:46] All right. Well, Karen, you included a bailout refresher in your piece, so why don't you remind our readers what the bailout's all about?

Karen: [0:51] Sure. So about two years ago it was fall of 2008 the economy was pretty much exploding, it seemed like, on every single day. So Congress authorized the Treasury Department to spend about $700 billion to rescue major financial institutions and to do foreclosure relief. It covered the gamut from banks to AIG to the Foreclosure Relief Program. Not all of that money was actually spent and we also got some of the money back since then.

Mike: [1:20] Why wasn't it all spent? Did some banks not need it?

Karen: [1:23] Yes. There were estimates about what kind of spending authorities they would need and not everyone needed the full amount that they expected.

Mike: [1:31] Did they set aside the $700 billion as an estimate because they didn't know exactly who was going to accept?

Paul: [1:34] Yes. I believe it was a back of the napkin type estimate. You have to remember that the whole idea was: the financial system is melting down; these toxic assets are at the heart of it. We need to go out there and buy these toxic assets to free up the banks' balance sheets and get rid of all this lack of certainty that was out there, all this fear.

Then they realized that would be really hard and so they changed entirely what they were going to do in the fall of 2008 and decided: [2:00] we'll just invest in the banks on a very large scale. That way they'll have capital, we'll shore them up, and that'll kind of get them through. So that became the model and then instead of this $700 billion program, it turned into $700 billion they could use for a whole slew of programs.

Mike: [2:27] and that's why it changed as things progressed, like GM.

Paul: [2:30] Right. That's one of the main reasons we launched our site, is because it became this very confusing mix of programs that you couldn't really figure out how one related to the other or what it really was. That was the main goal when we put the site together, was just to make it clear to people: who got money, what are the terms of them getting money, what are these different programs and that sort of thing.

Karen: [2:50] Also keep in mind that there's this TARP program, which we've been talking about, and there's also the money that the Government gave to Fannie Mae and Freddie Mac.

Mike: [2:58] And that's separate from the $700 billion.

Karen: [3:00] Separate from the 700, but we track them together as kind of the overall outlays from the Government.

Paul: [3:04] Right, that was a big decision we made when we put the bailout database together, because there's a lot of focus on TARP but the decision to bail out Fannie and Freddie, that was made just a month before TARP was passed. It's kind of all of a piece of shoring up the financial system, so that's why we put it together in the database, because, yes, it's a different bill, but it should be really thought of as...

Mike: [3:26] ...as part of that.

Paul: [3:27] Yes.

Mike: [3:28] Well, why is it so difficult to tell exactly how much taxpayers are going to make back?

Karen: [3:34] It's hard to know how much we're going to get back because there are programs that are still ongoing and will be ongoing for years and years to come. For example, let's take AIG. The way it looks like taxpayers are going to get their money back from AIG is by the Government owning stock in it and then eventually selling that stock. What price they sell the stock at is kind of to be seen.

Mike: [3:56] It will determine how much...

Karen: [3:57] ...how much we make, exactly.

Paul: [4:00] And ditto for the auto companies.

Mike: [4:07] Well, then why don't we talk about the circumstances when taxpayers profit? Is it strictly because of that? That's the real...

Karen: [4:14] That's the main driver. If GM, if AIG, if Chrysler become profitable over time, then the taxpayers will profit more.

Mike: [4:16] Those are big ifs.

Paul: [4:18] Those are big ifs. Those are: if the unemployment rate goes down, people have money to spend on cars sort of thing. It's all a chain of events.

Karen: [4:24] Also, it's not in terms of profitability but one of the things that has cost less than they expected was the Foreclosure Relief Program, which we've talked about on this podcast before.

Mike: [4:34] Right.

Karen: [4:47] So if the Making Home Affordable Program continues to underperform what it was kind of sold as, then we'll be spending a lot less than the $40 something billion it was initially expected to cost.

Mike: [4:51] Right, but with the expiration now they can't use that money and fund something else.

Karen: [4:52] Exactly.

Paul: [4:56] They're committed to that program but that program lasts through 2012 and then they'll be paying money out of the program through 2016. So this is a very long term thing. It's another reason it's kind of hard to say with certainty: "We'll only lose $50 billion or whatever."

Mike: [5:06] What's the deal with Fannie and Freddie? I assume that we can't sell them off. Is there anything the Government can do to make them a little more financially stable?

Paul: [5:15] Well, it's kind of an odd situation where they were shored up because they play an enormous role in our housing system. So they have this odd role where they're being used as an extension of the administration to help keep mortgage rates low and generally help the housing market because it was in free fall in 2008 and 2009.

[5:39] At the same time, it'd be nice if they didn't cost us hundreds and hundreds of billions of dollars more money but the objective of shoring up the housing market and costing us less money aren't always things that gel. So that's sort of a tension that's been obvious in their policy over the last year and a half. The reason you can't really give any sort of good idea of what's going to happen is because they don't know what's going to replace them. The general idea is that something will replace them.

[6:07] We had this system where we had these private companies that for complicated historical reasons had been backed by the Government but at the same time weren't part of the Government. So they enjoyed the benefits of Government backing without a lot of the consequences of transparency or whatever.

So everybody agrees: [6:23] We don't do that again, but what do we do in place of that? Because there's this idea: well, you do need some support for the housing market and there are a lot of conversations going on about that. They had a sort of symposium, the administration did, and early next year they'll put forward their idea of what should replace it and as part of that will be: what do we do about all these hundreds of billions of dollars?

Mike: [6:47] In "The Yearbook" you wrote that the CPP is the most profitable part of TARP, and that's the Capital Purchase Program. If it's the most successful, why is it the most maligned?

Karen: [6:58] I think most people didn't realize that we're going to get money back from a lot of the TARP investments. People think: "Oh, we gave all this money to the banks.." and we did, but a lot of it was in the form of investments where we eventually get money back from it.

[7:12] The CPP -- the Capital Purchase Program -- was the main vehicle to give money to the banks, the big banks and just the banking sector and so I think it's seen as the big slush fund for banks who got us into this mess in the first place, so it goes, and didn't really have any consequences as a result of it.

[7:31] So I think it's people don't quite realize that, actually, we're getting money back from it and then that's not the major “money pit” in the bailout. It's actually things like, potentially, AIG, depending on how the sale goes. It's Fannie and Freddie, are this big outstanding number. It's GM, all these other things that have actually much bigger, ultimately negative price tags.

Mike: [7:50] OK. Is there a penalty if the bank misses a quarterly payment?

Paul: [7:55] The short version is if they miss five or six then they are subject to more Government surveillance, like the Government might send somebody to their board meeting to sit in the corner with the arms folded and look skeptically at the [sic] “goings on”.

[8:10] There are 120 banks that have missed their dividend payments because there's a lot of hurt out there and these are regional banks.

Mike: [8:19] Smaller banks.

Paul: [8:20] These are smaller banks and a lot of them had a lot of money in construction loans and real estate loans and that sort of thing. That's obviously what has been hit really hard and that's why you've been seeing so many bank failures the last couple of years. A lot of these are pretty small and I think the Government's taking the approach: "We can't be watching all of these banks." Essentially, there are no consequences. A number of banks have failed and in that case the Government just loses the investment.

Mike: [8:46] Right.

Paul: [8:47] The idea is that these investments we've made in the much larger banks, like Citigroup and Bank of America, we made billions of dollars in profits. The Bank of America investment, that more than compensates for the failure of smaller banks. Even if there is a hundred of them, they're not the size of a Bank of America.

Mike: [9:05] Right. On the auto side of things, you keep hearing about GM but didn't Chrysler get TARP money, too, and how are they doing?

Karen: [9:13] That's right. Chrysler did get TARP money. They got about $11 billion of funds and still owe about $8 billion, so they've paid back some already.

Mike: [9:21] OK. OK.

Karen: [9:22] The Government currently owns about 10% of the new Chrysler, the post bankruptcy, restructured Chrysler. In general, for both GM and Chrysler, things are looking up. They've been able to shed some unprofitable units. They've been able to get better performing cars and have some profit.

Mike: [9:42] OK. I don't think we can have a discussion about TARP without mentioning AIG. They reached an agreement last week to settle-up.

Paul: [9:52] Basically, yes. There was a complicated rescue that involved both the Federal Reserve and the Treasury. First, they'll extricate themselves from the Federal Reserve, which have supported them in a number of ways, in part using the money that Treasury has offered them to get them out of the Federal Reserve.

[10:09] If AIG has healed itself at that point, is a profitable company, that stake will be worth potentially enough to cover whatever the outstanding amount is. But the outstanding amount is like $50, 60 billion, depending on how much is put in order to get them out of the Federal Reserve. So it's a complicated scheme, and I think no one can really say with any confidence that it's going to end up...

Karen: [10:32] The estimates, from before this was announced, were that it would cost upwards of $35 billion in the end, that it would be a net negative. So this is a new thing. Who knows how it might work out but people have been pretty pessimistic about it.

Mike: [10:47] Well, is there any kind of price tag on what AIG is worth or just even an estimate? I mean, it sounds to me like it's not even worth enough to be able to pay back the debt at this point.

Karen: [10:59] Investors seem to be nervous that if the Government tries to sell too quickly, the company...

Mike: [11:04] They'll lose too much.

Karen: [11:06] Yes, exactly. The company will just be devalued too greatly.

Mike: [11:09] Paul, why did we spend so much time following this? Why is this a ProPublica story?

Paul: [11:14] Well, we got involved in the fall of 2008 because it really wasn't clear where the money was going and we sort of [sic] “ad hocced” just started pulling together a spreadsheet of banks that I was pulling together from the various securities filings and press releases these companies were putting out announcing Government investment. That became a more formal site when we saw that it really was confusing just to get simple answers about the bailout.

Mike: [11:40] Yes, I remember you were keeping those on an Excel spreadsheet on your computer, right?

Paul: [11:45] Right. Yes. It was pretty rudimentary and then in the spring of 2009, particularly with the Obama Administration broadening the scope of the TARP and launching all these different programs, we thought it'd really help people just to understand where the taxpayer money was going with a clear breakdown.

Mike: [12:02] OK. And it kind of ended up serving as a public service, because we had all the data and other people were able to use it in their own ways?

Paul: [12:09] Yes, it's much clearer than anything you're able to find anywhere else. Just answering a simple question: "How much money is still out there?" is actually a really hard question to answer if you don't have our data. So we know it's used a lot. We know it was apparently the most popular feature on our site last year. I still get questions about it, so I know that people are looking at it.

Mike: [12:30] And you're still updating it now?

Paul: [12:32] I update it typically now twice a week, a lot this week because it's the second birthday and it's shutting down, so there are a lot of last minute investments that are happening.

Mike: [12:42] Right. Well, thank you so much for joining us. That was Paul Kiel and Karen Weise. You can see all of our bailout coverage, including the Bailout Recipient Tracker, which has every institution that received bailout funds and how much they got, at propublica.org/ion/bailout.

[13:03] This podcast was produced by Quadia Muhammad. For ProPublica, I'm Mike Webb. Thanks for listening, and we'll see you next week.

[Close music]

[13:10]

Transcription by CastingWords