Treasury Estimates TARP Bailout Loss at $29 Billion

The Treasury Department expects to lose

$29 billionon the federal bailouts

stemming from the financial crisis

By Louise Story
The New York Times
10/5/10

The Treasury Department expects to lose $29 billion on the federal bailouts stemming from the financial crisis, with most of the losses in its housing finance program and the auto rescue.

In a report released on Tuesday, the administration said it expected a $17 billion loss from its investments in General Motors, Chrysler and the auto finance companies, as well as a $46 billion loss from housing programs like the mortgage modification program known as the Home Affordable Modification Program.

The new figures, which include profits that offset some of the losses, come just as the Obama administration tries to wind down the bailout program known as the Troubled Asset Relief Program, or TARP. Last week, the government announced a plan to exit its investment in the insurer the American International Group.

Treasury officials have declared the bailout a success, emphasizing that much of the program’s money has been returned and that losses are now likely to be less than once expected. The cost, the report says, is far below the $350 billion the Congressional Budget Office once estimated.

“Because of the success of the program, TARP will likely cost a fraction of this amount,” the report said.

Recently, the Congressional Budget Office put the cost at $66 billion. And, after the bailout, the government will still be left with its investments in Fannie Mae and Freddie Mac, the government-backed housing finance companies. The report said Fannie and Freddie were expected to cause “substantial losses,” but it noted that they were financed using other funds, not the troubled asset funds.

The Treasury arrived at its figure by adding in profits that it expects to receive on shares of A.I.G. stock. Those shares were given to the Treasury by the Federal Reserve Bank of New York, and the Treasury expects they will yield a $22 billion profit. Without those shares, the Treasury would have reported a $51 billion loss, rather than a $29 billion loss, the report said.

In total, the Treasury has received back about $204 billion of the bailout funds, or just over half of the money it doled out. The report segregated the money given out under the Bush administration — $294 billion — from the $94 billion awarded under the current administration. All of the large bank bailouts were made under the prior administration, and since then, the money was invested in small banks, automakers, housing programs and A.I.G., the report said.

The bright spot, according to the report, were the bank paybacks. Nearly 80 percent of the money given to banks has been paid back. The Treasury also received $26.8 billion from banks through interest payments on the investments as well as sales of warrants the government received in the banks.

The report did not break down the sources of the automobile losses. The government gave the most money to General Motors and is seeking to recoup some through an initial public offering. The government also gave funds to Chrysler, Chrysler Financial and Ally Bank, formerly GMAC, the auto financing arm of G.M.

The housing programs, the report said, are not expected to return money to the government. Though $45.6 billion has been committed to programs, just $500 million has been paid out, because the Treasury plans to pay out the funds over time if, for instance, modified loans become permanent. The programs include mortgage modifications as well as funds for unemployed homeowners and those whose homes are underwater, or worth less than their mortgage debt.

The last bailout awards were announced last week, as part of the A.I.G. exit plan. The Treasury plans to give A.I.G. $22 billion more. That money will help A.I.G. pay down its debt to the Federal Reserve of New York. In exchange, the Treasury is also receiving the rights to proceeds from two special purpose vehicles from the Fed. The vehicles will pay out based on profits A.I.G. receives on sales of two of its units. The Treasury is predicting no losses on those.

The Government Accountability Office also released a report on Monday about the bailout, which said that the Treasury gave funds to 66 banks that were known to be weak. The bailout program was supposedly intended for banks that were healthy enough to survive without the funds.

In response to that report, a Treasury spokesman said that small banks that received bailout funds lent more money than banks that did not.