Troubled Asset Relief Program Report – Same Villains

Republicans and their deficits – here we go again.

The Congressional Budget office said today in its latest report on the Troubled Asset Relief Program that TARP’s net cost will be $31 billion. This estimate is about the same as what the agency last reported in May 2022 and similar to OMB’s* latest estimate. As always, the auto industry bailout was positive because it paid a return of $12 billion to taxpayers on capital invested.

The villains here were and are financial institutions. To AutoInformed’s knowledge not one person at the firms responsible has been successfully prosecuted for what was rampant financial fraud that caused the housing and stock markets to collapse as the ratings agencies paid by the swindlers continued to claim the complex financial instruments issued were investment grade when they were indeed junk. Junk bonds – never has a financial instrument been named so honestly . (AutoInformed: CBO – Taxpayer Cost is $31B for Troubled Asset Relief Program)

Lawmakers created the TARP in 2008 to stabilize the roiling financial markets. Given what appears to be universal Republican intransigence on guaranteeing US Treasury repayment of the huge amount of debt piled up considerably during the Trump Administration, and the ongoing Republican folly of tax-cuts for the wealthy and other forms of corporate welfare, it appears that the US is once again headed for a crash in the financial markets, a recession and perhaps a resulting global depression.

If another bailout is needed to provide stability in financial markets by purchasing and guaranteeing “troubled assets,” let’s hope we learn from the past and awaken to the idea that bailed out banks and financial institutions will have to give taxpayers equity in the institutions commensurate with the amount of money given them. Moreover, let none of the perpetrators be above the law. (AutoInformed: Trump on Track for Largest Deficits in U.S. History.)

Most of the support provided by the TARP has been repaid or dismissed; currently, only transactions related to mortgage programs are ongoing. Details of those completed transactions – including capital purchases and other support to financial institutions (AIG, Citigroup, and Bank of America, among others) and assistance to the automotive industry – are discussed in previous editions of the report (the most recent of which was published in May 2022). None of the investments the Treasury acquired through the TARP’s Capital Purchase Program remain outstanding.

TARP’s transactions fall into four categories:

• Capital purchases and other support for financial institutions,
• Assistance to the automotive industry. Taxpayers made $12 billion on this,
• Investment partnerships designed to increase liquidity in securitization markets, and
• Mortgage programs.

The ongoing mortgage programs stem from an initial commitment by the Treasury of $50 billion in TARP funds for programs to help homeowners avoid foreclosure. The banks made bad loans here. Subsequent legislation reduced that amount, and CBO anticipates that $32 billion will ultimately be disbursed.6

*Office of Management and Budget. The Office of Management and Budget oversees the performance of federal agencies and manages the federal budget.

 CBO Estimates Since May 2022

In its Report on the Troubled Asset Relief Program—May 2022, CBO projected that the TARP would cost $31 billion over its lifetime. CBO’s current estimate is about the same.

1. That 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 purchase of which the Secretary [of the Treasury] 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” (sec. 3 of P.L. 110-343, 122 Stat. 3767).

2. Originally, the law required OMB and the Congressional Budget Office to submit semiannual reports. That provision was changed to an annual reporting requirement by P.L. 112-204. OMB’s most recent report on the TARP was submitted on March 13, 2023, as part of Budget of the United States Government, Fiscal Year 2024: Analytical Perspectives (March 2023), pp.74–75, govinfo.gov/app/details/BUDGET-2024-PER.

3. Congressional Budget Office, Report on the Troubled Asset Relief Program—May 2022 (May 2022), cbo.gov/publication/58029

4. A net present value is a single number that expresses a flow of current and future income (or payments) in terms of an equivalent lump sum received (or paid) at a specific time. The present value depends on the rate of interest (the discount rate) that is used to translate future cash flows into current dollars.

5. For a detailed explanation of CBO’s approach to evaluating the program’s investments, see Congressional Budget Office, Report on the Troubled Asset Relief Program—April 2014 (April 2014), cbo.gov/publication/45260

6. Most recently, the Consolidated Appropriations Act, 2016 (P.L. 114-113), lowered the total amount authorized for mortgage programs to $40 billion.

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