Wait. I thought this was sold to We The Taxpayers as something we would MAKE money on. HA! Joke’s on us, I guess. It’s just so nice that all ours and our children’s money is going to prop up insolvent banks that committed fraud. Isn’t that special? Whoever could have imagined we’d be robbed in broad daylight?
By David Wessel
In the latest update of its cost estimates for Troubled Asset Relief Program, the $700-billion kitty Congress created in 2008 to bolster the banking system, the Congressional Budget Office says the ultimate cost to taxpayers — including investments, grants, and loans completed, outstanding, and anticipated — will be $109 billion.
Much of that stems from aid to American International Group (AIG) — about $36 billion — and the auto industry — about $34 billion. CBO estimates a very small net gain to the government from the Treasury’s purchase of more than $200 billion in shares of preferred stock from hundreds of financial institutions.
The Office of Management and Budget (OMB) estimates that the total cost of the TARP’s transactions will amount to $127 billion. OMB’s estimate is $18 billion higher than CBO’s estimate mainly because of different estimates in the cost of aid to AIG and in the amount expected to be spent by the Home Affordable Modification Program, which provides direct payments to mortgage servicers to help homeowners avoid foreclosure.
The Treasury secretary has the authority to purchase and hold up to $699 billion in assets at one time. CBO estimates that $344 billion of that authorized amount is outstanding or will be disbursed before the program expires on October 3, 2010, including $45 billion that is projected to be used for purposes not yet specified.
“Both CBO and OMB value the TARP’s investments by discounting to the present the projected cash flows stemming from each investment, using a discount rate that captures both the time value of money and the premium that a private investor would require as compensation for the risk of the investment or commitment. The resulting “net present value” is the cost or gain projected for the investment and represents an estimate of its market value,” CBO analyst Avi Lerner said in a post on the CBO blog.
CBO’s estimates on the cost of the pending health-care legislation may not be so cheery.