TARP’s Ultimate Tally Could Be Just $25 Billion

The estimated cost of the Troubled Asset Relief Program (TARP) keeps falling, according to the nonpartisan Congressional Budget Office (CBO).   The latest estimate is that TARP will cost the taxpayers just $25 billion – significantly less than the $700 billion allocated for the financial bailout in the fall of 2008.  The CBO’s last estimate – made in August – was that TARP would add up to a $66 billion loss, so the newest numbers represent a significant improvement.

This optimistic prediction is thanks to funds returned to the Treasury Department as banks repaid their loans and bought back stock warrants.  Another factor in the revised numbers is that less money than anticipated went to bailing out AIG and General Motors, the latter of which recently had an extremely successful initial public offering.  “Clearly, it was not apparent when the TARP was created two years ago that the cost would turn out to be this low,” according to the CBO.  “At the time, the U.S. financial system was in a precarious position, and the transactions envisioned and ultimately undertaken through the TARP engendered substantial financial risk for the federal government.”

TARP was originally created so the government could buy toxic mortgage-backed securities from big banks.  Former Treasury Secretary Henry M. Paulson ultimately altered the program to infuse cash into banks and other companies that were likely to fail.  The majority of banks have repaid their loans; in fact, the federal government has made approximately $12 billion from those transactions.  Because the financial system was stabilized more quickly than originally anticipated, only $433 billion of the TARP fund was spent, which reduced the potential for losses, according to the CBO.  President Barack Obama and Treasury Secretary Timothy Geithner have hailed the revised projection as a sign that the extremely unpopular program was effective and not the corporate giveaway as some opponents have accused.