Troubled Asset Relief Program – Total Cost $32B

Timothy Geithner and Sergio Marchione.

The Troubled Asset Relief Program (TARP) of 2008 and other desperate actions let the Department of the Treasury promote stability in financial markets through the purchase and guarantee of “troubled assets.”

It was a latter part of the Emergency Economic Stabilization Act of 2008 – controversial, politically fought over and opposed by Republican conservatives – and ultimately successful here and globally.

The estimated cost of the TARP stems from assistance to American International Group (AIG), aid to the automotive industry, and ongoing grant programs aimed at preventing foreclosures on home mortgages. Taken together, other transactions with financial institutions have yielded a net gain to the federal government from interest, dividends, and capital gains.

The Congressional Budget Office’s current assessment of the TARP’s costs is $1 billion lower than the $33 billion estimate it reported in June 2017. The decrease stems from a drop in projected disbursements for mortgage programs, notably the scourge of Wall Street AIG. CBO’s current estimate for all TARP transactions is $0.8 billion lower than Office of Management of the Budget’s latest estimate of $32.3 billion because CBO projects a slightly lower cost for those mortgage programs.

The U.S. financial system – and the world’s – were in a precarious condition – failing when the TARP was created.  The theory in place then by anti-government types and virtually all Republicans was that financial markets should be unregulated. (Now a thoroughly disproved in spite of ideologues.)  The result was financial excesses that turned into the Great Depression – aspects of which we are still suffering from.

Worse, Republicans are dismantling a key Reform that resulted from the Great Recession –  the Wall Street Reform and Consumer Protection Act of 2010, also called Dodd-Frank. The bailout transactions envisioned and ultimately undertaken for hapless corporations, Wall Street con men, unions and other special interests, required substantial financial risk for the federal government. (Gutting Consumer Finance Protection Bureau Hurts Auto Biz)

TARP’s net realized costs are near the low end of the range anticipated at the program’s outset, in part because investments, loans, and grants made to participating institutions through other federal programs and by the Federal Reserve have helped to curtail its costs. Financial controls – such as the government requiring banks “too big to fail” to keep adequate loss reserves – also helped.

TARP

In October 2008, the Emergency Economic Stabilization Act of 2008 (Division A of Public Law 110-343) established. Section 202 of that legislation, as amended, requires annual reports from the Office of Management and Budget (OMB) on the costs of the program. The law also requires CBO to prepare its own reports within 45 days of the issuance of OMB’s report each year. CBO’s assessment must discuss three elements:

  • The costs of purchases and guarantees of troubled assets,
  • Information CBO collects and the valuation methods it uses to calculate those costs, and
  • The program’s effects on the federal budget deficit and debt.

CBO prepared this data on TARP transactions completed, outstanding, or anticipated as of January 31, 2018. By CBO’s estimate, $444 billion of the $700 billion initially authorized will be disbursed through the TARP, consisting of $439 billion already disbursed and $4 billion in projected future disbursements. CBO estimates that the government’s total subsidy costs—including those already realized and those stemming from outstanding and anticipated transactions—will be $32 billion.

AutoInformed on TARP

 

 

About Kenneth Zino

Ken Zino is an auto industry veteran with global experience in print, broadcast and electronic media. He has auto testing, marketing, public relations and communications expertise garnered while working in Asia, Europe and the U.S.
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