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Congressional Budget Office Lowers TARP Price Tag to $25B

Although economists say the country would be in far worse shape without it, the federal government's $700 billion bailout package approved by Congress in October 2008 was widely criticized at the time for the cost taxpayers would be forced to bear.

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That projected price tag, though, has been steadily declining as the financial sector has found firmer footing. The latest estimates from the ""Congressional Budget Office"":http://www.cbo.gov (CBO) put the cost of the Troubled Asset Relief Program (TARP) at just over 3 percent of the $700 billion initially allocated.

Based on transactions completed, outstanding, and anticipated under TARP, CBO estimates that the cost of the overarching program, including subsidies that have not been made yet for mortgage programs, will amount to $25 billion.

That cost stems largely from assistance to American International Group (AIG), aid to the automotive industry, and grant programs aimed at avoiding foreclosures, the agency said. Other transactions with financial institutions will, taken together, yield a net gain to the federal government and taxpayers, CBO estimates.

CBO said in its ""report issued this week"":http://www.cbo.gov/doc.cfm?index=11980, ""Clearly, it was not apparent when the TARP was created two years ago that the cost would turn out to be this low….[T]he transactions

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envisioned and ultimately undertaken through the TARP engendered substantial financial risk for the federal government.""

However, CBO continued, ""Because the financial system stabilized and then improved, the amount of funds used by the TARP was well below the $700 billion initially authorized, and the outcomes of most transactions made through the TARP were favorable for the federal government.""

TARP officially expired in October of this year. Since it was put into place two years earlier, $389 billion has been disbursed under the TARP banner. The CBO estimates that an additional $44 billion was already allocated prior to the program’s expiration and will be distributed soon, with the majority of that additional funding going to AIG and foreclosure prevention programs.

That would bring total TARP pay-outs to $433 billion. Of that amount, nearly half, or $216 billion, has already been repaid by bailout recipients.

CBO's current estimate of the cost of TARP transactions is substantially less than the $66 billion projected as recently as August and the $109 billion estimate put forth by the agency in March.

The reduction in estimated cost over the course of this year stems from several developments, CBO explained, including additional repurchases of preferred stock by recipients of TARP funds; a lower estimated cost for assistance to AIG and to the automotive industry; and lower expected participation in the federal government's mortgage programs.

CBO's current estimate is also well below the Office of Management and Budget's (OMB) latest estimate of $113 billion. CBO says this is because the market value of assets held by the government has increased and several recipients of TARP funds - most notably General Motors and AIG - have significantly restructured the Treasury's investment since May 31, 2010, the date used as the basis for OMB's analysis.

About Author: Carrie Bay

Carrie Bay is a freelance writer for DS News and its sister publication MReport. She served as online editor for DSNews.com from 2008 through 2011. Prior to joining DS News and the Five Star organization, she managed public relations, marketing, and media relations initiatives for several B2B companies in the financial services, technology, and telecommunications industries. She also wrote for retail and nonprofit organizations upon graduating from Texas A&M University with degrees in journalism and English.
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