April 28, 2009 - TARP Estimates Sharply Higher
CBO Director Doug Elmendorf recently highlighted in a blog post that the agency sharply increased its estimates of the projected subsidies provided by the Troubled Asset Relief Program (TARP) to $356 billion, up from the January estimate of $189 billion. The new estimates nearly double the total subsidy rate for TARP from 27 percent to 51 percent. The subsidy estimates represent the net cost to the government based on the expected return on the initial investment into financial institutions. In its March report, CBO explains that the revised estimates result from three factors, including "changes in financial market conditions, new transactions, and a small shift in the anticipated timing of disbursements."

CBO notes that market yields on securities issued by the firms that have received TARP funds have increased since the time of its last estimate, and this has boosted the estimated subsidy cost of Treasury's purchases of preferred stock, asset guarantees and loans. CBO's earlier analysis assumed a larger range of companies having smaller subsidy rates (see these examples); however, a few companies (such as AIG) ended up receiving larger disbursements than previously estimated. Further, CBO's new estimates reflect its assumption that more transactions will take place in fiscal year 2010 (after October 2009) than had previously been projected, which shifts costs to 2010.

CBO Projections of Total TARP Subsidy by Fiscal Year

	Subsidy (in billions)			Disbursement (in billions)	Subsidy Rate (in percent)
	2009	2010	Total 2009–2010	Total 2009–2010	Total 2009–2010
Projected Subsidy as of January 20091	184	5	189	700	27%
Increase in projected subsidy between January and March 20092	152	15	167	n.a.	n.a.
Projected Subsidy as of March 2009	336	20	3563	700	51%

1. Congressional Budget Office. "The Budget and Economic Outlook: Fiscal Years 2009-2019." p.27.
2. Congressional Budget Office. "A Preliminary Analysis of the President's Budget and an Update CBO's Budget and Economic Outlook." p.7.
3. Congressional Budget Office, Directors Blog. Douglas Elmendorf's post on April 17, 2009.
   
   n.a. = not applicable

 

March 2, 2009 - TARP Subsidy Estimates
The Congressional Budget Office (CBO) has presented three estimates of the subsidies provided through the Troubled Asset Relief Program (TARP). The first accounts for transactions through 12/31/08; the second updates the bottom-line numbers for transactions through 1/22/09; and the third projects subsidy costs through the end of 2009.

CBO found that between 10/14/08 and 1/22/09, TARP:

• Purchased $293 billion of preferred stock and warrants from financial institutions and automotive companies;
• Furnished $94 billion of subsidies through those purchases;
• Provided an average subsidy rate of 32 percent to those firms ($94/$293).

CBO also found a significant variation in subsidy rates among firms; the highest subsidy rates were recorded by:

• General Motors and GMAC — 63 percent;
• American International Group (AIG) — 53 percent.