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The government is still trying to say the bailouts made money

May 21, 2012: 1:59 PM ET

Here's one instance where you should give the Treasury an "F" for effort.

Citigroup

Correction: 5/24 12:57

FORTUNE -- A few weeks ago the Treasury Department put out its latest report of what the government's rescue efforts in the wake of the financial crisis cost taxpayers. The conclusion: Nada. In fact, the Treasury says that if you take a broad view of all the bailout programs, taxpayers actually are looking at a $9 billion profit. It is the government's latest effort to paint the bailouts as a win-win for everyone. And like others it's clearly wrong.

Gretchen Morgenson does a pretty good job of taking on the report in this weekend's New York Times. In order to get to its $9 billion profit, the government includes in its calculations the $179 billion gain that the Federal Reserve made during the financial crisis. But at least a portion of the Fed's profits are interest payments on U.S. government debt, which the Fed has been buying to drive down interest rates. Those payments, of course, are paid by the government. So calling that a net gain is silly.

But Morgenson misses the bigger point. Ever since the bailouts, the government has been trying to cut the data in ways to make the bailouts seem profitable. In the past they have tried to focus on the bank bailouts alone, saying they made $10 billion. But that ignores the bailouts of the auto companies, which cost $22 billion. Other times the government has said that taxpayers have received all of their money back from the bailout of the nation's largest banks. But that ignores the 351 small and community banks that owe $15 billion to the government, and according to TARP inspector general Christy Romero have no real ability to ever pay that back.

In the latest report, the government excludes its foreclosure prevention programs. That seems odd for a report that the government says is its broadest look ever at its response to the financial crisis. Foreclosures, afterall, were at the heart of the problem. But that may make sense for the government's accounting: Add in the mortgage modification efforts, and the government's bailout efforts swing to a $51 billion loss.

The problem with this type of accounting of the bailouts is that politically it's not realistic. When the government starts handing out assistance, it's nearly impossible politically to stop with the biggest banks. Indeed, Occupy Wall Street and others are still pushing to get the government to do more for struggling homeowners and others. It's likely Uncle Sam eventually will.

In the end, it seems odd that the Obama administration would want to stick with this idea that the bailouts were profitable. It seems to undercut their argument that there is a need for financial reform, and to rein in Wall Street and prevent future bailouts. That's something that everyone seems to agree on. Everyone hates bailouts. I say we leave it that way.

Correction: I was wrong to say that the Treasury's cost analysis of the government's financial rescue efforts didn't include home loan modification programs. It does. Even with the program the government can claim that it made money on the bailouts, as long as you include the Fed's transfers, which I am not sure you should. I should have also mentioned that Fortune has covered this ground before. Our earlier analysis backs up the claim that the government made money on the bailout efforts. What's more, I am sorry for the delayed correction, but I waited to talk to the Sigtarp's office to get their analysis of the bailout efforts, because in part that's supposed to be their job. The Sigtarp's main beef appears to be that Treasury is counting shares the Federal Reserve got from AIG to offset losses that the Treasury had on its AIG investment. That tripped me up as well. But it really wasn't part of what I wrote here, which was wrong. In the recent words of Jamie Dimon and Robert Greifeld, this was not my finest hour.

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About This Author
Stephen Gandel
Stephen Gandel

Stephen Gandel has covered Wall Street and investing for over 15 years. He joins Fortune from sister publication TIME, where he was a senior business writer and lead blogger for The Curious Capitalist. He has also held positions at Money and Crain's New York Business. Stephen is a four-time winner of the Henry R. Luce Award. His work has also been recognized by the National Association of Real Estate Editors, the New York State Society of CPA and the Association of Area Business Publications. He is a graduate of Washington University, and lives in Brooklyn with his wife and two children.

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