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Report on the Troubled Asset Relief Program - October 2012 1 (October 11, 2012)

handle is hein.congrec/cbo10920 and id is 1 raw text is: OCTOBER 11, 2012 Report on the Troubled Asset Relief Program-October 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 discuss three elements: The costs of purchases and guarantees of troubled assets, The information and valuation methods used to calculate those costs, and 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 market 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 August 31, 2012; see OMB Report under the Emergency Economic Stabilization Act, Section 202, http://v- whitehouse.gov/sites/ default/files/ombi rep orts/tarp-rep o rt-august_2012, p df. To fulfill its statutory requirement, CBO has prepared this report on transactions completed, outstanding, and anticipated under the TARP as of September 17, 2012. By CBO's estimate, $431 billion of the initially autho- rized $700 billion will be disbursed through the TARP, including $417 billion that has already been disbursed and $14 billion in additional projected disbursements. The cost to the federal government of the TARP's trans- actions (also referred to as the subsidy cost), including grants for mortgage programs that have not yet been made, will amount to $24 billion, CBO estimates (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 home mortgage foreclosures. Other transactions with financial institutions 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 $8 billion lower than the $32 billion estimate shown in the agency's previous report on the TARP (issued in March 2012). That decrease in the estimated cost stems primarily from an increase in the market value of the government's investments in AIG and sales of a portion of those investments at prices that were higher than the market price at the time of CBO's last report. CBO's current estimate for all TARP transactions is less than OMB's latest estimate of $63 billion, largely because CBO projects a lower cost for the mortgage programs. When the TARP was created, the U.S. financial system was in a precarious condition, and the transactions 3. See Congressional Budget Office, Report on the h'oubler/Asset ReliefProTram--vla ch 2012 (March 28, 2012). Note: Numbers in the text and tables may not add up to totals because of rounding.

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