Meltdown 101: Earning Profits on Bailout Money

A gaggle of big banks have repaid their loans to the government under the $700 billion financial rescue. Is there a chance taxpayers will eventually recoup the rest of the money spent on this and other bailouts — and maybe even take in a little profit?

Here are some questions and answers about recovering bailout money.

Q: Which banks have repaid their government loans?

A: The government injected capital into hundreds of banks under the Treasury Department program set up in October after the financial system — and U.S. officials — peered into the abyss of collapse. A towering scaffold of other government programs, including tens of billions in Federal Reserve emergency loans and FDIC guarantees for debt issued by banks, sprang up to ward off financial catastrophe.

The bank bailout program and the economic stimulus package that came in February together topped $1 trillion, pumping up the federal deficit.

In June, banks began repaying the money they received under the Troubled Asset Relief Program, or TARP. The "repayers" so far include some of the nation's biggest and best-known banks. Among them: JPMorgan Chase & Co., Morgan Stanley, Goldman Sachs Group Inc., U.S. Bancorp, American Express Co., BB&T Corp., Bank of New York Mellon Corp. and Northern Trust Corp.

Q: Did the government earn any profits when the money was paid back?

A: The government has made around $4 billion in profits from the eight above institutions and another $35 million from 14 smaller banks, according to calculations by The New York Times in a report published Sunday.

In return for the government aid, the banks issued the Treasury warrants to buy their common stock at a set price over the next 10 years, and preferred shares carrying a 5 percent annual dividend rate. The government's profits come from those dividends and increases in stock prices.

Q: So it's all good, right? The government is getting a healthy return on its emergency investment in the banks?