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Report on the Troubled Asset Relief Program - March 2012 1 (March 28, 2012)

handle is hein.congrec/cbo10680 and id is 1 raw text is: MARCH 28, 2012 Report on the Troubled Asset Relief Program-March 2012 In October 2008, the Emergency Economic Stabilization Act of 2008 (Division A of Public Law 110-343) estab- lished the Troubled Asset Relief Program (TARP) to enable the Department of the Treasury to promote stability in financial markets through the purchase and guarantee of troubled assets.' Section 202 of that legis- lation requires the Office of Management and Budget (OMB) to submit semiannual reports on the costs of the Treasury's purchases and guarantees of troubled assets.2 The law also requires the Congressional Budget Office (CBO) to prepare an assessment of each OMB report within 45 days of its issuance. That assessment must dis- cuss three elements: The costs of purchases and guarantees of troubled assets, a The information and valuation methods used to calculate those costs, and a The impact on the federal budget deficit and debt. 1. The law defines troubled assets as (A) residential or commercial mortgages and any securities, obligations, or other instruments that are based on or related to such mortgages, that in each case was originated or issued on or before March 14, 2008, the pur- chase of which the Secretary determines promotes financial mar- ket stability; and (B) any other financial instrument that the Secretary, after consultation with the Chairman of the Board of Governors of the Federal Reserve System, determines the purchase of which is necessary to promote financial market stability, but only upon transmittal of such determination, in writing, to the appropriate committees of Congress. 2. OMB's most recent report on the TARP was submitted on Febru- ary 13, 2012, as part of Analytical Perspectives, Budget ofthe United States Government, Fiscal Year 2013, pp. 38-55, wvwwhitehouse. gov/sites/default/files/omb/budget/f20 I 3/assets/spec.pdf. To fulfill its statutory requirement, CBO has prepared this report on transactions completed, outstanding, and anticipated under the TARP as of February 22, 2012. By CBO's estimate, $431 billion of the initially authorized $700 billion will be disbursed through the TARP, and the cost to the federal government of the TARP's transactions (also referred to as the subsidy cost), including grants for mortgage programs that have not yet been made, will amount to $32 billion (see Table 1). The estimated cost of the TARP stems largely from assis- tance to American International Group (AIG), aid to the automotive industry, and grant programs aimed at avoid- ing foreclosures. Other transactions with financial insti- tutions will, taken together, yield a net gain to the federal government, in CBO's estimation. CBO's current assessment of the cost of the TARP's trans- actions is $2 billion lower than the $34 billion estimate shown in the agency's previous report on the TARP (issued in December 2011).3 That decrease in the esti- mated cost stems primarily from an increase in the mar- ket value of the government's investments in AIG and General Motors (GM), partially offset by added costs resulting from new initiatives in the Treasurys mortgage programs. CBO's current estimate for all TARP transac- tions is less than OMB's latest estimate of $68 billion, largely because CBO projects a lower cost for the mort- gage programs. When the TARP was created, the U.S. financial system was in a precarious condition, and the transactions envi- sioned and ultimately undertaken engendered substantial financial risk for the federal government. Nevertheless, 3. See Congressional Budget Office, Report on the 7roubledAsset ReliefProgram-)ecember 2011 (December 16, 2011). Note: Numbers in the text and tables may not add up to totals because of rounding.

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