* Profit is from sales of MBS bought during crisis
* Part of continuing wind-down of emergency bailout
* Projected losses from TARP bailout steadily coming down
WASHINGTON, March 19 The U.S. Treasury
Department said on Monday it made a $25 billion profit on sales
of mortgage-backed securities acquired during the financial
crisis, part of its ongoing efforts to wind down
taxpayer-financed bailout programs.
The sales were the latest indication the multiple programs
the government and Federal Reserve initiated to bail out the
financial sector may turn out to be less costly than originally
The Treasury bought $225 billion of MBS in 2008 and 2009 in
an effort to keep the mortgage market from freezing up as
private investors fled. The $250 billion it reaped from the
investment reflected both principal and interest.
"The successful sale of these securities marks another
important milestone in the wind-down of the government's
emergency financial crisis response efforts," Treasury Assistant
Secretary Mary Miller said.
The government purchased the mortgage debt as part of a bid
to stabilize the housing industry, using funds authorized by the
Housing and Recovery Act of 2008. It was one of several programs
running in parallel with the Troubled Asset Relief Program, or
TARP, which was set up during the administration of President
George W. Bush to buy toxic assets from banks, but that ended up
largely as a mechanism to inject capital into financial
Economist Douglas Lee, who heads advisory firm Economics
from Washington, said it seems inevitable the government will
end up with "substantial losses" on the bailout effort but it
was appropriate to try to reap gains where possible.
"A lot of these assets that were acquired were distressed at
the time that they were bought so the chances of coming out
ahead in selected areas is quite good," Lee noted, such as on
the mortgage-backed securities.
Over the long haul, though, the effort to rebuild a reliable
housing finance system means that costs for subsidizing
operations of firms like Fannie Mae and Freddie Mac will
continue to be costly, he noted.
Investments in insurer AIG and in automakers are likely to
prove hard to fully recoup. Earlier this month, the Treasury
said it was selling 206.9 million shares of AIG, which still
would reduce the government's stake in the company to 70 percent
from 77 percent.
"You have to say that these programs have worked in the
sense that it's restored a sense of stability that we sought,"
Lee said, "But now it is right to have the government back out
and let the private sector get on with their job."
Many critics contend it did more to prop up Wall Street than
Main Street, and anti-bailout anger helped fuel both the
conservative Tea Party movement and Occupy Wall Street on the
left. Treasury Secretary Timothy Geithner has argued the steps
the government took helped prevent a deeper economic downturn.
Some $414 billion was paid out in TARP funds in a process
that gave the government preferred stock in banks, other
financial firms and some automakers in return for the public
investment. Some of the preferred stock was later converted to
common stock in some of the firms. A Treasury official said that
to date $331 billion has been repaid, including dividends and
interest earned on the preferred shares.
While the TARP program currently is $83 billion in the red,
the Treasury projects losses will ultimately shrink to about $68
billion. The nonpartisan Congressional Budget Office has a lower
loss estimate of $34 billion.
Taxpayers, also stand to lose from the bailout of mortgage
finance firms Fannie Mae and Freddie Mac,
which were placed into government conservatorship in 2008. The
government has lost $151 billion on its investments in the two
companies, but the Obama administration projects that loss will
fall to $28 billion by 2022.
The Treasury began selling the mortgage securities last
year. In January, it had completed sales from a separate,
smaller portfolio of asset-backed securities it had acquired to
boost credit availability for small businesses.
Sales from both portfolios went smoothly with little or no