This came across the headlines today and it shows how misunderstood the whole “bailout” was and is.
|WASHINGTON (CNNMoney) -- Treasury just scored a big win -- it got rid of one of its financial-crisis era portfolios of mortgage-backed securities and made a hefty $25 billion profit, the department announced Monday.|
Treasury bought $225 billion worth of mortgage-backed securities during the height of the financial crisis starting from October 2008 through December 2009. Some of those securities were backing up loans thought to be worthless, financial analysts reported at the time. But Treasury's portfolio was made up mostly of 30-year fixed rate mortgage backed securities were guaranteed by Fannie Mae or Freddie Mac, making them more valuable.
Last March, Treasury started the process of selling those securities. The agency reported that the total of cash from the sales, the principal and interest paid taxpayers back $250 billion.
However, if the mortgages behind those securities fail, taxpayers will still be on the hook, since federal housing giants guarantee the loans and taxpayers have been propping up Fannie Mae and Freddie Mac.
Treasury heralded the profit, calling it a successful winddown of a useful program that helped the nation navigate the financial crisis. "The successful sale of these securities marks another important milestone in the wind down of the government's emergency financial crisis response efforts," said Assistant Secretary for Financial Markets Mary Miller in a statement.
When the Treasury purchased $225 bln of mortgage bonds during the crisis in 2008 and 2009, it was simply an exchange of MBS for cash deposits (reserves) in the banking system, right?
Now the Treasury sells back those same mortgage backed securities to those same investors for a “profit” of $25 bln. So what has happened? Those investors (taxpayers) LOST $25 bln on that trade. (They sold for $225 bln and bought them back for $250 bln.)
Yet the news is calling this a profit for taxpayers.