TARP losses now estimated at $51 billion

The Obama administration on Tuesday estimated that the $700-billion financial bailout fund would cost taxpayers $51 billion — and possibly 43% less if the government succeeds in recouping the money it put into insurer American International Group Inc.

In a report issued two days after the formal end of the Troubled Asset Relief Program, the Treasury Department said that it still expected to incur “substantial losses” from the separate government seizure of housing giants Fannie Mae and Freddie Mac.

But even with those bailouts, the department repeated its estimate that the cost of all the government’s bailout initiatives stemming from the 2008 financial crisis would cost less than 1% of the nation’s annual economic output, or about $145 billion.

In the savings and loan debacle of the late 1980s and early 1990s, the government spent about 2.4% of U.S. economic output, or gross domestic product, to rescue the industry, the Treasury said.


“TARP undoubtedly helped to stem the financial panic in the fall of 2008 and contributed to the stabilization of the financial system,” Treasury Secretary Timothy F. Geithner wrote to lawmakers in submitting the report, which looks back on the two years since TARP was enacted.

Major projected losses from TARP include $17 billion from about $80 billion spent to rescue General Motors Co., Chrysler and their financing arms. The government’s mortgage modification program, which offers cash incentives to banks to rework home loans to avoid foreclosures, is expected to lose $46 billion.

Those and other losses would be partly offset by a projected profit of $16 billion on capital injections into banks.

The new Treasury estimate is less than the $66-billion loss projected in August by the nonpartisan Congressional Budget Office and takes into account last week’s agreement between the government and AIG on a plan to recoup all taxpayer funds. AIG owes about $95 billion, including $49.1 billion in TARP funds.

The exit involves Treasury converting preferred shares purchased with TARP money into common stock and selling them over time.

Based on AIG’s closing stock price Friday, that investment would give Treasury a $21.9-billion profit, which the report said would reduce TARP losses to $29 billion.