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Treasury Report Says Total TARP Cost Estimated at $50 Billion

Source: Washington Post

Posted on 06 Oct 2010

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The Treasury Department estimated in a "two-year retrospective report" that the total final cost to taxpayers of the much-maligned $700 billion Troubled Asset Relief Program will be around $50 billion, with costs expected to come from investments in auto companies and a mortgage modification program.

Officially expired on Sunday, the two-year TARP program initially used government money to make capital injections into large and small financial institutions to stabilize the financial system. Eventually it expanded into other programs including a spending endeavor seeking to help lenders and borrowers modify mortgages and avoid foreclosures.

The report released on Tuesday said that Treasury expects the total cost of all taxpayer-infused financial interventions to limit the financial crisis, including TARP, will be less than 1% of the U.S. Gross Domestic Product.

According to a recent Treasury transactions report roughly $255 billion of TARP is still outstanding.Read TARP's latest transactions report

Roughly $70 billion is still outstanding as part of a massive TARP bailout to keep American International Group Inc. from failing, according to the Treasury’s transactions report. That amount is still on the books of the institution for now despite its plan unveiled Thursday to extricate itself from the injection that saved the insurer at the height of the financial crisis. However, the Treasury Department said in its report that taxpayers will likely earn a profit on the investment the government has made in banks and AIG.

Throughout the report, Treasury touted its TARP program as being effective in unfreezing the markets for credit and capital and restoring confidence in the financial system.

According to the report, Treasury plans to finish selling its investment in Citigroup Inc. early next year. It added that General Motors plan to hold an initial public offering later in 2010 that will allow the U.S. to begin to recover additional taxpayer funds.

“General Motors is planning an initial public offering for later this year that will allow us to begin to sell down, and AIG has announced a restructuring plan that will accelerate the timeline for repaying the government and put taxpayers in a considerably stronger position to recoup our investment in the company,” the report said.

In addition, TARP still has taxpayer-funded infusions in roughly 600 community and regional banks. The Treasury said it is working with the institutions and regulators to “accelerate repayment where appropriate.”

Fannie and Freddie

According to the report, outside of TARP, the Treasury expects to incur “substantial” losses from taxpayer injections it provided into housing refinance giants Fannie Mae and Freddie Mac. The Federal Housing Finance Agency placed the two mortgage giants into conservatorship in late 2008.

"These losses stem from poor credit choices and bad risk management decisions...,” the report said.