Heartland Institute Responds to CBO Estimates of the Cost of TARP

Published February 1, 2012

The Heartland Institute’s Center on Finance, Insurance, and Real Estate today responded to estimates by the nonpartisan Congressional Budget Office that the federal government will spend $23 billion on the Troubled Asset Relief Program in 2012 – $20 billion more than previously projected – due largely to declines in the shares of General Motors and American International Group.

The following statement about the $192 billion bailout of AIG and its continuing drain on U.S. taxpayers, from R.J. Lehmann of The Heartland Institute – a free-market think tank – may be used for attribution. For more comments, refer to the contact information below. To book a Heartland guest on your program, please contact Tammy Nash at [email protected] and 312/377-4000. After regular business hours, contact Jim Lakely at [email protected] and 312/731-9364.

“This projection from the CBO is just the latest evidence of the 40-months-long record of mismanagement following the ill-fated decision by the U.S. Treasury and Federal Reserve Bank of New York to rescue AIG from the consequences of its own monumental failures in September 2008.

“Contrary to proper resolution procedures, which would call for wiping out AIG’s equity shareholders and replacing its board of directors, the U.S. Treasury and New York Fed committed to running AIG as a going concern. Had AIG been fully nationalized, not only would the huge collateral calls on the company have ceased, as its credit rating would have been replaced with that of the U.S. government, but much of the $52 billion in collateral that AIG was forced to post to counterparties between January and September of 2008 may ultimately have been reversed.

“Instead, Fed officials made the bizarre decision to buy out, at 100 cents on the dollar, the collateralized debt obligations and residential mortgage-backed securities on which AIG had written credit protection. In the process, they funneled tens of billions of dollars not only to fellow TARP recipients like Goldman Sachs, Bank of America, and Citigroup, but even foreign banks like Societe Generale, DeutscheBank, and Barclays.

“Those poor decisions are, unfortunately, irreversible. But now that the ‘crisis’ has passed, federal officials must cease their quixotic attempt to paper over their mistakes with accounting gimmicks. So long as AIG remains in the custody of the federal government, its looming shadow threatens to distort insurance markets. Recently, AIG CEO Robert Benmosche has even intimated the company may be interested in buying back some of the Asian operations it has sold off and even the CDO and RMBS portfolios that got it into trouble in the first place.

“AIG exists today only because of the support of American taxpayers. As majority owner of the company, the Treasury should initiate sales of any and all of its remaining assets – including its U.S. life insurance operations, global property and casualty insurance operations, and its aircraft leasing business – until every penny that has been extended to the company is repaid in full.”

R.J. Lehmann
Deputy Director, Center on Finance, Insurance, and Real Estate
The Heartland Institute
[email protected]

The Heartland Institute is a 28-year-old national nonprofit organization with offices in Chicago, Illinois; Washington, DC; Austin, Texas; Tallahassee, Florida; and Columbus, Ohio. Its mission is to discover, develop, and promote free-market solutions to social and economic problems. For more information, visit our Web site or call 312/377-4000.