CBO: TARP Cost Estimate Increased to $34 Billion

December 20th, 2011
in econ_news

government-moneyEconintersect:  Remember the suggestions when TARP was being implemented that the government might actually make money on the program.  That seems almost certainly not to be the final outcome as estimates of loss are growing.  In March the CBO (Congressional Budget Office) estimated the government losses (also referred to as subsidy) would amount to $19 billion.  The latest report (December 16) raises the estimate to $34 billion.  The reason for the loss centers on actions taken to bail out AIG, aid to the automotive industry and grants for avoiding foreclosures.  The portion of the funds used for bank rescues did actually make money, according to the CBO.  See Econintersect table later.

Follow up:

The CBO report was developed from the latest report (November 8) from the OMB (Office of Management of the Budget).  The CBO estimate of cost is lower than that of the OMB, which came in at $53 billion.  The CBO states that their lower estimate results from projection of “lower cost for the Treasury’s housing programs under the TARP” than was made by the OMB.  The amount of money made on TARP funds used for banks is inferred by taking the difference between the costs specified ($59 billion) and the total costs estimated for the program.


Sources:     CBO March 2011 Report on TARP, OMB November 8, 2011 Report on EESA and CBO December 2011 Report on TARP

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  1. Jeff Miller says :

    While I am sure this is technically accurate, this is really not the right question.

    At the time of the TARP program there was massive systemic risk that dwarfed the losses cited here. At the time nearly everyone was criticizing the entire size of the bailout. When did we switch to expecting a profit?

  2. Admin (Member) Email says :

    Jeff - - -

    Yes, a better question would be did TARP prevent a catastrophe? And my answer is, arguably, yes. More on that later.

    The topic of the latest news is how is the accounting turning out. And the answer is that estimates now indicate not as well as the same sources estimated earlier this year.

    It always interests me how history is a funny thing – our memory simply forgets some of it.

    Here is a quote from Slate (Aug. 28, 2009):
    "The Troubled Asset Repurchase Program, the controversial $700 billion package passed in the heat of last fall's presidential election campaign, wasn't presented as a bailout of a failed system. Rather, then-Treasury Secretary Henry Paulson and his allies touted it as an opportunity for the taxpayer to profit by making investments in name-brand companies."

    Here is another excerpt from Bloomberg (Oct. 20, 2010):
    "The U.S. government’s bailout of financial firms through the Troubled Asset Relief Program provided taxpayers with higher returns than yields paid on 30-year Treasury bonds -- enough money to fund the Securities and Exchange Commission for the next two decades.
    The government has earned $25.2 billion on its investment of $309 billion in banks and insurance companies, an 8.2 percent return over two years, according to data compiled by Bloomberg. That beat U.S. Treasuries, high-yield savings accounts, money-market funds and certificates of deposit."

    And more from Bloomberg (Dec. 8, 2009):
    "Talk of lower losses from the Troubled Asset Relief Program, and even profits within some parts of it, are the kind of gains only Washington would crow about. No matter how the numbers turn out, the program is no victory for taxpayers."

    I failed, in a quick search, to come up with primary sources for the quotes from Paulson and Bush, and later from Geithner, as well as by many notable pundits who happen to have their credibility enhanced by impressive titles and awards, such as Nobel Prizes. But the thought of the government making a profit from TARP was not an uncommon thought. If I had to prepare a legal brief I would go back and review old videos from 2008 and 2009 to recover a number of "expert" opinions that the government could make money on TARP.

    After looking possible in 2010, estimates from that year degraded slightly by the first quarter of 2011 and much further in the latest review. And that was the point of this news brief.

    To change the subject from what I believe was the thrust of your comment, I still question why restructuring of the oligarchy was not part of the bailout process. Unfortunately I think I know the answer - it was essentially bankers bailing out bankers and strengthening the financial system was not a primary objective.

    John Lounsbury

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