A report released by the Congressional Budget Office (CBO) has found that of the Obama Administration's $50 billion in Troubled Asset Relief Program (TARP) funds, only around $12 billion will be dedicated to the prevention of foreclosures and assisting American homeowners in distress. In October 2008, the Emergency Economic Stabilization Act of 2008 established TARP to enable the U.S. Department of the Treasury to purchase or insure troubled assets as a way to promote stability in financial markets. Section 202 of that legislation requires the CBO prepare a report on those transactions within 45 days of a report issued by the Office of Management and Budget (OMB) on the TARP's activities.
The CBO assessment must discuss three elements:
►The costs of purchases and guarantees of troubled assets;
►The information and valuation methods used to calculate those costs; and
►The impact on the federal budget deficit and debt.
To fulfill its statutory requirement, CBO has prepared this report on transactions completed, outstanding, and anticipated under the TARP as of Nov. 18, 2010. CBO estimates that the cost to the federal government of the TARP's transactions (also referred to as the subsidy cost), including grants that have not been made yet for mortgage programs, will amount to $25 billion (see Table 1 below). That cost stems largely from assistance to American International Group (AIG), aid to the automotive industry, and grant programs aimed at avoiding foreclosures. Other transactions with financial institutions will, taken together, yield a net gain to the federal government, CBO estimates.
CBO's current estimate of the cost of the TARP's transactions is substantially less than the $66 billion estimate incorporated in the agency's latest baseline budget projections (issued in August 2010) and the $109 billion estimate shown in the agency's previous report on the TARP (issued in March 2010). The reduction in estimated cost over the course of this year stems from several developments:
►Additional repurchases of preferred stock by recipients of TARP funds;
►A lower estimated cost for assistance to AIG and to the automotive industry;
►Lower than expected participation in mortgage programs; and
►The elimination of the opportunity to use TARP funds for new purposes (because of the passage of time and the provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act).
The CBO's current estimate is also below the OMB's latest estimate of $113 billion because the market value of assets held by the government has increased and several recipients of TARP funds—most notably General Motors and AIG—have significantly restructured the Treasury’s investment since May 31, 2010, the date used as the basis for OMB's analysis.
For more information, visit www.cbo.gov.