Today CBO released the latest in a series of statutory reports on transactions undertaken as part of the Troubled Asset Relief Program (TARP)—the program established in October 2008, during the financial crisis, to enable the Department of the Treasury to promote stability in financial markets through the purchase and guarantee of “troubled assets.”
To further our effort to demystify certain aspects of the federal budget, CBO also prepared an infographic on the TARP. Its aim is to summarize the most pertinent details about the TARP since its inception: the types of assistance, cash disbursements, and net budgetary costs or gains.
CBO estimates that the net cost to the federal government of the TARP’s transactions,
including the cost of grants for mortgage programs that have not been made yet, will amount to $34 billion. CBO’s analysis reflects transactions completed, outstanding, and anticipated as of November 15, 2011.
That cost stems largely from assistance to American International Group (AIG), aid to the
automotive industry, and grant programs aimed at avoiding home foreclosures: CBO estimates a cost of $59 billion for providing those three types of assistance.
But not all of the TARP’s transactions will end up costing the government money. The
program’s other transactions with financial institutions will, taken together, yield a net gain to the federal government of about $25 billion, in CBO’s estimation.
CBO’s current estimate of the cost of the TARP’s transactions is $15 billion higher than the $19 billion estimate shown in the agency’s previous report. That increase in the
estimated cost stems primarily from a reduction in the market value of the government’s
investments in AIG and General Motors.
The Office of Management and Budget (OMB), in its latest estimate, projects the
program’s costs to total $53 billion. CBO’s current estimate is less than OMB’s estimate, largely because CBO projects less spending for the Treasury’s housing programs under the TARP; that difference is partially offset by CBO’s higher estimate of the cost of assistance to AIG.
CBO’s current estimate of the total disbursements by the TARP and the net cost of those disbursement is well below what was originally envisaged. Only $428 billion of the originally authorized $700 billion will be disbursed through the TARP, CBO estimates.
When the program was created, the U.S. financial system was in a precarious condition, and the transactions envisioned and ultimately undertaken engendered substantial financial risk for the federal government. Nevertheless, the costs directly associated with the TARP, when taken in isolation, have been toward the low end of the range of possible outcomes anticipated when the program was launched—in part because funds invested, loaned, or granted to participating institutions through the Federal Reserve and other government programs besides the TARP helped limit those costs.
This report was prepared by Avi Lerner of CBO’s Budget Analysis Division. The
infographic was prepared by Jonathan Schwabish of CBO's Health and Human Resources Division and Courtney Griffith of CBO's communications team.