Bailing out the financial sector will cost taxpayers US$167 billion more than originally anticipated, a Congressional Budget Office (CBO) estimate showed.
The original figure in January was US$189 billion, but it is now US$356 billion — US$152 billion more for this year and US$15 billion more next year, the CBO said in its report updating the budget and economic outlook.
The CBO raised its projection because yields have increased on securities issued by the bailed-out financial institutions under the US$700 billion Troubled Asset Relief Program (TARP).
That means there will be an increase in the cost of the subsidy from the US Treasury’s purchase of preferred stock, asset guarantees and loans to automakers, the CBO said.
In addition, since the CBO issued its original cost estimate for the program, the Treasury announced additional deals with Bank of America and American International Group.
Those deals will be at rates higher than the averages in the CBO’s original estimate. Also going up: the subsidy rates in the administration’s US$50 billion program to deal with home foreclosures.
The TARP program isn’t the only one that will prove more costly to taxpayers than originally thought, says the CBO.
Bailing out Fannie Mae and Freddie Mac — the two mortgage finance giants taken over by the government in September — will cost another US$52 billion this year alone and an additional US$28 billion for their activities from this year to 2019, the CBO said.
Since January, the condition of both Fannie Mae and Freddie Mac has turned out to be worse than expected, so the CBO has increased its estimate of the current value of future losses.
Most of the increase stems from loans and guarantees inherited at the time the government took control of the two housing entities, the CBO said.
Fannie Mae and Freddie Mac plunged into the purchase of risky mortgages, becoming two of the major contributors to the housing market’s collapse and the ensuing global financial crisis.
Several hundred demonstrators protested near Wall Street on Friday against the handling of the US economic crisis, government bailouts of banks and corporations and executive bonuses.
Labor, healthcare and anti-war groups held posters that read “Bail Out the Unemployed” and “No More $ For Wall St & War.”
Hundreds of protesters lined up on Broadway to march past the headquarters of American International Group and close to the New York Stock Exchange and financial giants Bank of America, Chase and American Express, but were not permitted on Wall Street.
Michael Feinberg, 51, a rabbi who runs a nonprofit workers rights group, held a sign that read “Regulate The Profiteers,” and said that corporations who helped plunge the economy into recession should not receive bailout money.