$700 billion was made available. "Only" $400 billion of this was actually spent. It was used to buy so-called toxic assets. Many of those assets were later converted back into cash: half of the $400 billion has already been repaid. Based on the value of the remaining assets, after they get sold and the money returned to the pot, it looks like the cost of TARP will be about $42 billion. That's a lot of money, but far from $1 trillion.
The TARP money was just a payday loan until QE1, QE2, and now QE3 can take effect. Of course the banks paid the money back, they got the money from the discount window for free, which was printed by the gov't printing T-bills. Why stay on TARP when you can borrow money for free and pay TARP back?
The money goes from the Govt to the Fed who lends it to banks via the discount window, IIRC the rate for the discount window is still 0. The Fed still holds $2 trillion in assets which is up from $500 million pre-2008, there's the $1.2 trillion (and a bit more). The TARP verbiage is just a smoke screen because that's where people will look, so they moved it to the discount window.
I think the graphs over at ZeroHedge that come from Bloomberg terminals are a tad bit more accurate than XKCD, that's just my opinion though.
This is the common misconception....the money doesn't come from the Gov't to the Fed. The Fed prints the money, any sienorage (earnings) it earns on the money it prints and lends is paid back to the Treasury. Also, when the Fed prints new money it either lends to the financial institutions via the discount window or it buys Treasuries directly from the government (i.e. the Fed gives money to the Gov't).
When the Fed lent money to the banks via the discount window, they did that to shore up the capital bases of the various financial institutions. The Treasury never paid for it....matter of fact, the argument can be made that if inflation runs away like doomsayers have been predicting since QE1, the Treasury will benefit - because inflation is simply a tax on the poor.
But, inflation has been subdued, despite constant harranging from doomsayers, and growth has been tepid. The Fed took on over $2T onto it's balance sheet because it is the only organization in the world that can. It wasn't up from $500M, it was up from $500B. You were off by only a factor of 1,000. So it only swelled 4X....considering that the price of not doing that would have been a great depression that made the depression of the 40s look like a mild recession, I would say it's worth every penny.
Also, the reason public debt has expanded is because of the borrowing the government has had to do to finance things like increased unemployment insurance, increased medicare/medicaid claims and tax cuts for everybody.
Also, because interest rates have been at all-time lows...i.e. most investors still see US Treasuries as the safest asset around (comparatively speaking).
The amount of money the central bank parceled out was surprising even to Gary H. Stern, president of the Federal Reserve Bank of Minneapolis from 1985 to 2009, who says he “wasn’t aware of the magnitude.” It dwarfed the Treasury Department’s better-known $700 billion Troubled Asset Relief Program, or TARP. Add up guarantees and lending limits, and the Fed had committed $7.77 trillion as of March 2009 to rescuing the financial system, more than half the value of everything produced in the U.S. that year.
http://xkcd.com/980/huge/#x=-10540&y=-4650&z=6
$700 billion was made available. "Only" $400 billion of this was actually spent. It was used to buy so-called toxic assets. Many of those assets were later converted back into cash: half of the $400 billion has already been repaid. Based on the value of the remaining assets, after they get sold and the money returned to the pot, it looks like the cost of TARP will be about $42 billion. That's a lot of money, but far from $1 trillion.