What happened to the $400 billion from TARP, the Troubled Asset Relief Program, that the federal government used to bail out AIG, big banks such as CitiGroup and Bank of America, and the auto industry?

The banks have paid back their TARP funds and provided the U.S. government with a huge profit. CitiGroup was the last financial institution to receive TARP funding, but has now paid it back. However, the federal government still has 7.7 billion shares of CitiGroup stock it obtained as part of the deal. It is estimated that the government’s profit on the CitiGroup loan will be close to $8 billion. But the profit on CitiGroup is minimal compared with the amount the TARP program made from Bank of America.

It is estimated that $200 billion of the $400 billion in TARP funds spent has been repaid to the federal government. The return of the $200 billion by the banks was not done out of a sense of gratitude or obligation, but in order to free them up to have significant executive salaries, dividends for their shareholders and fewer restrictions on the investment of their assets.

Where the federal government has its problems is with the auto industry and AIG. There appears to be $80 billion outstanding to the government from General Motors and Chrysler. The chances of getting that money back are not very good. But perhaps the biggest user of TARP funds was the insurance company AIG, which is a long way from repaying any of the funds or the interest thereon.

Among the financial bailouts not included in TARP are Fannie Mae (Federal National Mortgage Association) and Freddie Mac (Federal Home Mortgage Corporation). These quasi-governmental agencies bought mortgages from financial institutions but did not do a good job of screening the mortgages they purchased, ending up with a lot of bad loans. The government has already lent $126 billion to Fannie Mae and Freddie Mac,  and it appears it is going to have to lend them even more.

Fannie Mae and Freddie Mac’s incompetence, or poor business management in buying bad loans, could be attributed to the agencies’ management. However, several years ago, Congress got involved and decided that Fannie Mae and Freddie Mac were not carrying out the objective of government agencies.

Specifically, Barney Frank, a congressman from Brookline, Mass., started putting pressure on the agencies to make investments in areas where there was less financial stability. Fannie Mae and Freddie Mac became social-service agencies and were no longer operating with the same fiscal acuity.

Congress may complain about the lack of responsibility and poor financial health of Fannie Mae and Freddie Mac, but Congress also better remember that it was Congress that sent these agencies in a direction of social policy rather than good business practices. The federal Recovery Act has served its purpose in many directions, while in other directions it has become a political football. It has been and continues to be used to cover up some of Congress’s own errors.

Sumner Lipman has practiced law as a trial lawyer for more than 40 years and is a member of the Augusta law firm Lipman, Katz & McKee.