Financial Regulatory Forum

TARP watchdog sees loss on U.S. bailout program

By Reuters Staff
November 13, 2009

WASHINGTON, Nov 12 (Reuters) – The U.S. government’s $700 billion bailout program will “almost certainly” result in an overall loss for taxpayers, a key auditor for the program said on Thursday.

The U.S. Treasury’s Troubled Asset Relief Program will produce a “negative return” because some programs, such as $50 billion in mortgage modification subsidies and incentives, were not designed with any reasonable opportunity for a return to taxpayers, said Neil Barofsky, special inspector general for the program, know as TARP.

“It’s almost certainly be a loss,” Barofsky told a forum sponsored by Bloomberg.

Barofsky in a report to Congress in October said taxpayers were “extremely unlikely” to recover all of the bailout funds doled out by the Treasury.

For example, he said, the more than $20 billion initial loans made to auto makers General Motors and Chrysler before their bankruptcies would likely never be repaid.

As of Wednesday, the Treasury said it had received repayments of $73.02 billion and had collected dividends, interest and warrant sale profits totaling $13.03 billion.

Barofsky declined to offer an opinion on whether U.S. Treasury Secretary Timothy Geithner should extend TARP into October 2010. The program’s capacity to make new investments is due to expire at the end of 2009 unless Geithner decides to extend it.

Barofsky also said his office is auditing the government’s role and influence as a major shareholder in a number of private companies that received aid, including its role in General Motors Co.’s [GM.UL] decision to scuttle an earlier deal to sell its Opel division in Europe.

“We’re not looking at this just from the auto industry, but across the different financial institutions that we have significant ownership interests in — what role the United States is playing in the management of those companies,” he said. (Reporting by David Lawder; Editing by Leslie Adler)

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