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Treasury Notes

 Treasury Reaches Another TARP Milestone

By: Timothy G. Massad

One of the tools the Treasury Department used to respond to the financial crisis reached an important milestone recently when Treasury recovered the last of its investments in the Public-Private Investment Program, or PPIP.  This was one of the critical programs Treasury used to unfreeze the markets that provide credit to American families and businesses.

As the financial crisis reached its peak, banks were not making new loans to businesses, or even to one another.  Businesses could not get loans for new investments.  Municipalities and state governments could not issue bonds at reasonable rates.  And families could not get credit.  The securitization markets—which provide financing for credit cards, student loans, auto loans, and other consumer loans as well as small business loans—had basically stopped functioning.  The economy was contracting at an accelerating rate. 

That was why Treasury launched several programs to help unfreeze these markets and bring down the cost of borrowing for families and businesses.  A key program was PPIP, which was designed to help restart the market for mortgage backed securities.  It worked alongside the Term Asset Backed Securities Loan Facility, or TALF, a program launched with the Federal Reserve that was designed to help restart the market for auto loans, student loans, and other types of consumer loans.  A third Treasury credit market program was focused on the financing needs of small businesses.  Together, these programs allowed banks and other financial institutions to re-deploy capital and extend new credit to households and businesses.

Since it was launched in March 2009, PPIP has helped restore the availability of credit by facilitating the purchase of troubled legacy mortgage-backed securities.  It did so by providing financing on attractive terms to several funds created specifically for this purpose, in which the government partnered with private investors.  The purchases by these funds helped improve the liquidity and prices of these securities.  This helped bring private capital back to these markets, which in turn increased the availability of loans to families and businesses. 

Under the program, Treasury originally committed $22.4 billion of equity and debt financing to the PPIP funds, and ultimately disbursed $18.6 billion.  With the Oaktree fund’s final equity repayment last week, Treasury has now recovered all of its PPIP debt and equity investments.  Moreover, as of June 19, 2013, Treasury has earned a net positive return of $3.7 billion through interest and additional proceeds.  The remaining payments will provide the taxpayers with an additional positive return on their investment.

The repayment of the last PPIP equity investment is one part of Treasury’s larger effort to wind down the remaining TARP investments.  Treasury has already recovered nearly 95 percent ($398.15 billion) of the funds disbursed through TARP ($419.97 billion) to date.  Excluding disbursements for the housing programs and including the proceeds from sales of all Treasury AIG shares, Treasury disbursed $411.72 billion for all TARP investment programs and has now collected $415.71 billion. 

Of course, the main measure of our success is not how much of a return we made on these programs, nor can any such return ever compensate for the terrible cost this crisis inflicted on American families and businesses—a cost reflected in the millions of lost jobs, foreclosed homes, retirements postponed, and lost savings.  There is still considerable work left to be done to fully recover from this crisis and strengthen our growth.  But the damage would have been far worse, and the costs far higher, without the government’s forceful response. 

At the height of the financial crisis, few Americans would have believed that the taxpayers would be close to recouping the total value of the amount extended to prevent another Great Depression so quickly.  So when we cross certain milestones like the PPIP repayment, it is important to take stock of how far we have come from the days of widespread financial panic.  And it should remind us that our government can still tackle enormous challenges when we work together to solve problems.


Timothy G. Massad is Assistant Secretary for Financial Stability at the U.S. Department​ 
Posted in:  Financial Stability
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