The Net Cost of TARP

From the CBO Director's blog:

Troubled Asset Relief Program (TARP) Report, CBO Director's Blog: CBO is required by law to report semiannually on OMB’s assessment of expenditures under the Troubled Assets Relief Program (TARP).  Today, CBO released the first of these reports. ...

Through December 31, 2008, the Treasury disbursed $247 billion to acquire assets under that program. CBO valued those assets using discounted present-value calculations similar to those generally applied to federal loans and loan guarantees, but adjusting for market risk as specified in the legislation that established the TARP. On that basis, CBO estimates that the net cost of the TARP’s transactions ... amounts to $64 billion—that is, measured in 2008 dollars, we expect the government to recover about three quarters of its initial investment.

The Office of Management and Budget’s (OMB’s) report on the TARP, issued in early December, only addressed the first $115 billion distributed under the program. CBO and OMB do not differ significantly in their assessments of the net cost of those transactions..., but they vary in their judgments as to how the transactions should be reported in the federal budget. Thus far, the Administration is accounting for capital purchases made under the TARP on a cash basis rather than on such a present-value basis—that is, the Administration is recording the full amount of the cash outlays up front and will record future recoveries in the year in which they occur. That treatment will show more outlays for the TARP this year and then show receipts in future years.

The main reason for this post is to highlight how the TARP bailout funds are being carried on the books of the federal government. The cash approach used by the Bush administration overstates the best estimates of the program's costs. Since the size of the deficit and the accumulated debt will be used politically to oppose any further policy measures such as health care reform, it's important to understand the games that are being played in the presentation of the program's cost in the federal budget.