CBO Lowers AIG Bailout Loss Estimate

NU Online News Service

WASHINGTON--The Congressional Budget Office today released a report slashing its estimate of the government's cost of bailing out American International Group to $14 billion--a steep drop from its March estimate of $36 billion.

The new estimate was contained in a report projecting that the total cost of the Troubled Asset Relief Program (TARP) initiated in October 2008 will be $25 billion, far less than earlier estimates, including a $66 billion estimate in August. A March report projected a total loss of $109 billion.

The losses stem from AIG, funds provided the automobile industry and grant programs aimed at avoiding foreclosures, the CBO said.

Other transactions with financial institutions will, taken together, yield a net gain to the federal government, CBO estimated.

However, the CBO report projecting a $14 billion loss on the investment in AIG is still higher than the $5 billion projected by the Treasury Department in its last estimate.

The decline in the estimated cost of bailing out AIG is lower because of a restructuring of the debt through an agreement with Treasury in September.

In the transaction, Treasury agreed to exchange its existing preferred stock for approximately 1.1 billion shares of AIG common stock. CBO based most of its lower projections of the cost of bailing out AIG on the rising value of AIG stock.

CBO said AIG received financial assistance in two forms through TARP: $40 billion in purchases of preferred stock by the Treasury Department and creation of a $30 billion line of credit for the company.

Through Sept. 30, 2010, all of the preferred stock remained outstanding, and approximately $7.5 billion had been drawn from the line of credit. In addition, the company failed to pay the quarterly cash dividends due on those Treasury investments, CBO said.

The report is significantly different than estimates by the independent auditor of TARP.

The independent auditor, in a report in October, included a chart indicating that the government only authorized $176.5 billion in aid to AIG, but at its peak, total aid reached $191.4 billion. As of Sept. 30, the end of the government fiscal year, the outstanding balance on the various facilities was $123.3 billion, the auditor's report said

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