Geithner: Bailouts may end up costing less than expected

McClatchy NewspapersApril 23, 2010 

WASHINGTON — The government's controversial financial bailouts of automakers, major banks and other industries could cost taxpayers $87 billion when all is said and done, Treasury Secretary Timothy Geithner said Friday.

That's far less than expected; the price tag for the original bank-bailout legislation alone was $700 billion. However, many banks have since repaid their loans, with interest. The new bailout cost projections, if they bear out, could mitigate the public anger toward Washington that the bailouts generated.

"The cost of stabilizing the financial system is likely to be significantly lower than previously expected," Geithner said in a letter Friday to congressional leaders.

The biggest change in Geithner's estimates involved the Troubled Asset Relief Program, which was set up in 2008 to help rescue the collapsing American banking industry, and later expanded to help the auto industry and troubled insurance giant American International Group.

"Lower utilization, faster repayment and improved financial conditions have already reduced the program's impact on deficits and debt," Geithner said.

TARP losses should total about $117 billion, Geithner said in his nine-page letter.

That includes $48 billion that went to AIG, $28 billion to General Motors, Chrysler and their financing firms, and $49 billion to help homeowners facing foreclosure. Offsetting those losses somewhat are projected net gains of $9 billion from several Treasury TARP programs aimed at helping banks recover.

Separately, help for mortgage finance titans Freddie Mac and Fannie Mae, now in government conservatorship, should account for $85 billion in other losses.

However, earnings on the Federal Reserve's creative finance programs not only saved many banks from going under, but they're also now projected to earn $115 billion more than they cost.

A year ago, the Obama administration figured the total cost of all the recent bailouts could be more than $500 billion, or 3.5 percent of the gross domestic product.

"We now expect that the direct costs of all our interventions will cost less than 1 percent of GDP," Geithner wrote. "This means that the federal deficit and debt will be substantially lower than previously expected."

The nonpartisan Congressional Budget Office estimates that the deficit for the current fiscal year will wind up at around $1.5 trillion, while next year's figure should reach $1.34 trillion.

Geithner's report came at a strategically important time for the administration, as the Senate prepares to take a test vote Monday on legislation to overhaul how the nation's financial institutions are regulated, a plan that includes a new process for dissolving troubled institutions.

Republicans charge that it's a bailout bill, but Democrats and independent analysts say the bill contains no such provisions.

Geithner made it clear that the bill is something different from the controversial bailouts of the past few years, calling the legislation the "next steps in repairing our financial system through comprehensive financial regulatory reform."

Democrats also have been trumpeting other recent good news concerning past rescue efforts. Earlier this week, administration officials hailed General Motors' announcement that it was repaying $8.1 billion in loans to the U.S. and Canadian governments five years ahead of schedule. GM is running an ad thanking taxpayers for the help.

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Congressional Budget Office deficit projections

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