TARP Costs Drop 50%


WASHINGTON (TheStreet) -- The Congressional Budget Office (CBO) has confirmed what the Obama administration has been saying for months: the hated government bailout program will cost taxpayers much less than initially projected.

On Tuesday the CBO released its most recent quarterly analysis of TARP - short for the Troubled Asset Relief Program - showing that the cost has dropped 62% in just a matter of months. The U.S. Treasury Department now stands to lose about $25 billion on TARP, according to the CBO, "substantially less" than its August estimate of $66 billion and its March estimate of $109 billion.

To put it in perspective, TARP's cost represents less than 2% of the projected budget deficit for fiscal 2011 (of $1.3 trillion) and less than 0.2% of that year's projected U.S. gross domestic product (of $15.3 trillion).

The reduced cost reflects accelerated repurchases from TARP recipients, lower cost estimates for American International Group (Stock Quote: AIG), General Motors (Stock Quote: GM) and Chrysler, as well as the fact that fewer borrowers have enrolled in federal mortgage-rescue programs than previously expected.

"Clearly, it was not apparent when the TARP was created two years ago that the cost would turn out to be this low," the CBO said.

Of the $389 billion disbursed to financial firms, automakers and through programs to assist the capital markets and housing industry, $216 billion has been repaid - largely from banks. Another $6 billion worth of investments has been written off, split equally between banks and automakers.

There are $166 billion in funds still outstanding, with a large chunk to AIG, a large chunk to GM, another large chunk distributed among dozens of small banks and a smaller chunk devoted to market programs.

Just $1 billion has gone to mortgage programs like "Making Home Affordable," which was designed to assist struggling borrowers.

The CBO expects the various programs will require another $44 billion in assistance before the TARP is rolled up.

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