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WASHINGTON (AFP) – The U.S. Treasury said Wednesday the government’s massive response to the economic crisis five years ago paid off, avoiding a catastrophic breakdown of the financial system.

In a report marking the anniversary of the bankruptcy of investment bank Lehman Brothers — which snowballed into the worst crisis since the 1930s — the Treasury defended deploying hundreds of billions of taxpayer dollars to save other banks, major financial institutions and auto companies.

“Without the government’s forceful response, that damage would have been far worse, and the ultimate cost to repair the damage would have been far higher,” the report summarized.

While the rescue effort required piling up government debt, it was necessary, said Treasury officials who briefed reporters.

“We prevented a collapse of the financial system,” one said on condition of anonymity.

“That’s why we did it, and that’s the measure of success.”

The report says the government recovered what it spent — or even turned a profit — in the Troubled Asset Relief Program and the bailouts of housing agencies Fannie Mae and Freddie Mac, both efforts launched late 2008 by the outgoing administration of president George W. Bush.

Of $238 billion pumped into more than 700 vulnerable banks, only $3 billion has yet to be paid back.

From $182 billion allocated to rescue the giant insurer American international Group, the government counts $205 billion in returns, though that includes $17 billion in paper gains still not realized.

In the huge operations to save General Motors and Chrysler from bankruptcy, the government put up $80 billion.

It has since sold Chrysler to Italy’s Fiat, and General Motors is back to health, selling cars at pre-crisis levels and relisted on the U.S. stock market.

Even so, the auto sector rescue is likely to come up $15 billion short, the Treasury admitted.

The largest chunk of money went to Fannie and Freddie, whose survival was crucial in turning around the housing sector after it imploded when the recession left millions of Americans unable to pay their mortgages.

The government pumped $187 billion into the two, taking control of them after shareholders were wiped out.

While none of the equity has been recovered, the government has taken $146 billion in dividend payments from them and expects more in the future, the official said.

The downside is a government deficit that rocketed to $1.4 trillion in fiscal 2009 and continued to top $1 trillion until this year. That sent government debt to the current nearly $17 trillion, compared to just $10 trillion five years ago.

Critics of the government say that is why the bailouts were wrong, arguing that taxpayers will continue to bear the cost for years into the future.

But the Treasury officials said keeping the economy together and, especially, keeping the tens of thousands of auto company workers in their jobs were worth the costs.

People “do not really understand what we did,” said another Treasury official.

“The run was stopped, the panic was stopped, the system didn’t collapse.”

“The ripple effects of letting those companies implode would have been huge.”

Photo Credit: AFP/Paul J. Richards

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