Administration slashes bailout loss estimate by $200 billion

By David Cho
Washington Post Staff Writer
Monday, December 7, 2009; 10:17 AM

The Obama administration plans to announce this week that it is slashing its estimate of the losses from the government's financial bailout package by about $200 billion, Treasury officials said.

The White House had projected in August that the $700 billion Troubled Assets Relief Program, or TARP, would lose about $341 billion over the next 10 years. But officials scaled back the estimate after once-shaky Wall Street firms began recovering much more quickly than expected. In addition, several TARP initiatives have been funded at a smaller amount than originally planned.

Since the TARP became law in October 2008, banks have paid dividends and interest of about $15 billion and returned aid worth a total of about $71 billion, a Treasury official said Monday. Last week, Bank of America said it would soon repay an additional $45 billion. Another $139 billion of TARP funds was never allocated to any programs.

Treasury officials said they now expect bank repayments to reach $175 billion by the end of next year.

The new, more optimistic estimates of TARP losses could pave the way for Democrats to tap some of the program's unspent funds for a jobs bill currently being crafted in the House. White House press secretary Robert Gibbs said Friday that President Obama is likely to discuss such a plan during a speech Tuesday at the Brookings Institution. The administration is facing pressure to address the nation's soaring unemployment rate -- currently at 10 percent, near a 26-year high.

Using TARP funds for job creation probably would require additional legislation, though White House officials would not provide details of the administration's plans ahead of Obama's speech. Asked whether Obama endorses House Democrats' proposals to use some bailout money for job creation, Gibbs said, "It's certainly being looked at, yes."

Some leading Republicans are opposed to proposals to use TARP funds for job creation, saying it would violate the intent of the law. These lawmakers say they simply want the program to end.

"The money went out to financial institutions. Now it's coming back, and as it comes back, what we ought to do with that money is use it to reduce the budget deficit," House Minority Leader John A. Boehner (R-Ohio) said on Bloomberg TV last week. "Nobody ever had any idea that when this money came back that we'd go ahead and spend it on something else."

Treasury Secretary Timothy F. Geithner also has advocated not spending some of the unallocated funds, as a way of demonstrating the administration's commitment to fiscal discipline.

Not spending the funds would reduce the administration's estimate of the nation's massive debt burden, which stands at about $12 trillion.

Treasury is all but certain to extend the program for another year, because it is not yet finished rolling out TARP-funded initiatives for community banks, small businesses and homeowners, officials said. It also wants to assure financial markets that the administration has enough money at its disposal to address any financial crisis that could develop next year.

A Treasury official said that the rate of foreclosures remain high and that commercial real estate losses are still weighing heavily on many banks, particularly smaller ones. Small businesses are also struggling because they rely heavily on banks for loans and do not have access to non-traditional capital markets to get credit.

The administration must inform Congress by Dec. 31 if it wants to extend the program. The original legislation grants the Treasury secretary the power to continue TARP until October 2010, two years after it was signed into law.

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