Casey B. Mulligan submits:
By subsidies, I mean the ex poste increase in the net worth of owners of mortgages, or pieces of mortgages, as the result of:
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Government purchases of mortgages, pieces of mortgages, and liabilities of funds and institutions that own mortgages or pieces of mortgages, in excess of their market value. It’s the excess over market value that counts as a subsidy. For example, most of the $100+ billion the government paid to AIG was a subsidy, because what it got in return was essentially worthless (from the market’s point of view). The $700 billion TARP would not be all subsidy, but the Treasury received some positive value assets in return. On the other hand, I would say that Goldman Sachs (GS) received a TARP subsidy, even though it eventually paid the money back with interest, because the government paid more than market price for its Goldman Sachs securities (e.g., in another state of the world, Goldman Sachs never pays back).