Treasury cuts estimate of TARP loss to $51 billion

WASHINGTON — The Obama administration on Tuesday estimated that the $700 billion financial bailout fund would cost taxpayers $51 billion — and possibly 43 percent less if the government succeeds in recouping the money it put into insurer American International Group Inc.

In a report issued two days after the formal end of the Troubled Asset Relief Program, the Treasury Department said that it still expected to incur "substantial losses" from the separate government seizure of housing giants Fannie Mae and Freddie Mac.

But even with those bailouts, the department repeated its estimate that the cost of all the government's bailout initiatives stemming from the 2008 financial crisis would cost less than 1 percent of the nation's annual economic output, or about $145 billion.

In the savings and loan debacle of the late 1980s and early 1990s, the government spent about 2.4 percent of U.S. economic output, or gross domestic product, to rescue the industry, the Treasury said.

"TARP undoubtedly helped to stem the financial panic in the fall of 2008 and contributed to the stabilization of the financial system," Treasury Secretary Timothy F. Geithner wrote to lawmakers in submitting the report, which looks back on the two years since TARP was enacted.

Major projected losses from TARP include $17 billion from about $80 billion spent to rescue General Motors Co., Chrysler and their financing arms. The government's mortgage modification program, which offers cash incentives to banks to rework home loans to avoid foreclosures, is expected to lose $46 billion.

Those and other losses would be partly offset by a projected profit of $16 billion on capital injections into banks.

The new Treasury estimate is less than the $66 billion loss projected in August by the nonpartisan Congressional Budget Office and takes into account last week's agreement between the government and AIG on a plan to recoup all taxpayer funds. AIG owes about $95 billion, including $49.1 billion in TARP funds.

The exit involves Treasury converting preferred shares purchased with TARP money into common stock and selling them over time.

Based on AIG's closing stock price Friday, that investment would give Treasury a $21.9 billion profit, which the report said would reduce TARP losses to $29 billion.

Distributed by McClatchy-Tribune Information Services.

© 2010 Knoxville News Sentinel. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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Comments » 2

Weezil writes:

So.... the eeeeeeeevil private companies are going to settle out & pay most of it back... while gov't/politician-run Fannie & Freddie continue to be a deeply corrupted, ineffective, debt-expanding, taxpayer-financed, lobbyist-enriching boondoggles.

But to be fair, I'd say it's a pretty safe bet... that the highly esteemed and unquestionably *ethical* members of Congress that pushed for & voted for TARP.... ARE going to get some VERY fat "campaign contributions" from the companies and lobbyists involved.

Who knows.... "the most ethical and transparent Congress in history", may even actually publically report a few of the... uhhhh... "campaign contributions" THIS time.

ROFL!!!! Yeah, right. You can count on THAT.

JohnBravo writes:

TARP has been an overall success. Kudos to Congress & Pres. Bush for passing it. Kudos to Congress & Pres. Obama for getting most of the money back. And thanks to the companies who've paid their loans back!

Now, here's the big problem. This piece of the article I just cannot and will not accept. Contact your congressmen & Senators. The president, everyone! Loosing $17Bn on GM & Chrysler is bull hockey. HOLD THE DAMN STOCK UNTIL IT IS WORTH ENOUGH TO MAKE A PROFIT.

What is it with Washington - Gotta great chance at turning a profit on the Chrysler & GM stock if you will just hold the stock a while.

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