The Office of Financial Stability has issues it’s annual report for fiscal year 2010 (http://www.financialstability.gov/docs/2010%20OFS%20AFR%20Nov%2015.pdf). This end of year report, two years after TARP was created, gives a nice overview of TARP goals and financial performance (I worked on the 2009 version of this document). The bottom line or headline numbers? That TARP housing related programs will cost roughly 50 billion, the Capital Purchase Program and investment in the large banks look like money makers at current valuations, but the bailout of AIG and the auto companies still look like money losers, although only on the order of 50 billion given current prices. And reasonable assumptions about expected payouts (not risk-adjusted) implies that the expected value of TARP except for housing assistance may make a tiny positive ex post return for the taxpayer. So, nothing like the loss of the $770 billion of initial TARP spending authority.
One very interesting question in all of this accounting — and one that we may never answer completely — is whether the bank bailouts were profitable investments in an ex ante sense. They were not if one marked the investments to market (the average subsidy rate was huge – on the order of 25%). But, when the investments were made, were markets prices not reflecting the future state prices of the taxpayers? Were markets “stressed” enough that informed or sophisticated investors did not have the capital to take advantage of these profitable investments? If we were a very large player with the ability to borrow, how would we know when we could make profitable “systemic” investments, and when would we want the government (including the Fed) to have that mandate? If you answer that we should never do this at all, remember that, done successfully, this would reduce taxes. And remember that we do this all the time, in a small way. The Fed decides where in the US Treasury yield curve to trade in order to making the highest trading profits, and the Treasury decides what maturities to issue.
Of course TARP was not undertaken to be profitable, but to stabilize the system. Still a hard question, perhaps more interesting, but a distinct question from the issue of profitability.