CBO lowers estimate of bailout costs

Saturday, June 27, 2009

WASHINGTON -- The nonpartisan Congressional Budget Office estimates that taxpayers will lose about $159 billion from the government's bailouts of the financial and auto industries.

While a massive figure, the CBO put the total cost of the bailouts at $356 billion in March. But that estimate assumed the Troubled Asset Relief Program's entire $700 billion would be spent and less than half would be repaid. The latest estimate is based on the $439 billion that the government has invested or loaned out so far.

The CBO, in a report released late Thursday, also said it lowered its estimate because of improved financial market conditions since this spring and the repayment of $70 billion in government investments by 32 banks.

Ten large banks, including JPMorgan Chase & Co., Goldman Sachs Group Inc. and Morgan Stanley, repaid $68 billion to the government last week. Those payments came earlier than the CBO expected.

Separately, the budget office estimates that the government likely will lose most of the money it has provided to the auto industry.

So far, the government has provided $55 billion in loans and investments to General Motors Corp., Chrysler LLC, its financing arms and suppliers. The ultimate cost to taxpayers of that financing will be $40 billion, the CBO said.

The Obama administration has promised an additional $30 billion loan to GM but that hasn't yet been paid out, the CBO said.

The CBO's estimates reflect the difference between what the government paid for its investments or lent to businesses and the current market value of those assets.

Overall, the projections are intended to capture what the CBO calls the subsidy costs of the bailouts, which includes the risk taxpayers take on by lending to troubled companies.

As an example, the CBO calculates that the $70 billion repaid by banks still cost taxpayers $1 billion, because of the risk of the investments and the fact that the government received lower dividend payments than private investors would have.

Taxpayers also will lose big on their assistance to failed insurance giant American International Group Inc., the CBO said. The cost of the $70 billion provided to AIG from the bailout program will be $35 billion, the CBO estimated. AIG has also received more than $87 billion in loans from the Federal Reserve.

The bailouts of Citigroup Inc. and Bank of America Corp., both of which received $45 billion from the TARP, ultimately will cost taxpayers $9 billion and $10 billion, respectively, the CBO said.

The administration has committed $50 billion in TARP funds for its Making Home Affordable plan, which is intended to prevent home foreclosures. The plan involves paying mortgage loan servicers that help homeowners modify their loans. None is expected to be repaid.

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