How does the federal government’s assistance to the financial markets through the Troubled Assets Relief Program (TARP) affect the budget?
Created in October 2008 by the Emergency Economic Stabilization Act (EESA), the Troubled Assets Relief Program (TARP) authorizes the Treasury to spend approximately $700 billion to purchase mortgages, mortgage-backed securities, and other financial instruments in order to restore stability in the U.S. financial markets. To date, assistance has taken the form of loans, guarantees, stock purchases (equity purchases, capital injections, etc.), and incentive payments. TARP disbursements increase the debt dollar-for-dollar, but only the estimated amount that Treasury will not recover gets charged to the deficit. Of the $369 billion disbursed so far, CBO estimated that $159 billion (or 43 percent) will not be recovered, so the deficit increases only by this amount. This is the “subsidy amount,” but it is always in flux due to changing credit conditions. CBO estimates the subsidy rate based on the net-present value of the assets purchased or insured under TARP, adjusted for market risk.
Related Questions
- How does the federal government’s assistance to the financial markets through the Troubled Assets Relief Program (TARP) affect the budget?
- Why isn’t the credit union industry using money from the Troubled Assets Relief Program (TARP) to take care of this problem?
- Is Federal Government Financial Management Under Control?
