The cost of running the Troubled Asset Relief Program (TARP) has been reduced by $200 billion by the Obama administration. During August, the administration had calculated that the long-term costs of running the TARP would be $341 billion. The Obama administration intends to use $200 billion of unallocated TARP funds to create new jobs and lower the nation’s fiscal deficit.
TARP — the financial rescue program used to pump money into banks — was approved by Congress in October 2008 at the height of the credit crisis. In the absence of a decision to extend it, the program will expire on Dec. 31 2009.
The U.S. budget deficit, which hit a record $1.4 trillion in fiscal 2009, is expected to be around the same in fiscal 2010 because of the government’s huge borrowing needs. The government is trying to use to the surplus TARP money to reduce the fiscal gap along with funding projects such as building bridges and roads, and weatherizing homes, as well as providing further aid to the unemployed and to small businesses. By utilizing the extra TARP money the government aims to create new jobs and reduce unemployment, which stands at approximately 10.0%.
Though when, back in August, the government projected that the cost of the TARP program would come to $341 billion, recent estimates have reduced the cost to $141 billion. This has been due to the earlier-than-estimated repayment of TARP loans by some of the beneficiaries such as JPMorgan Chase & Co. (JPM), Morgan Stanley (MS), American Express Co. (AXP), Goldman Sachs Group Inc. (GS), U.S. Bancorp (USB), Capital One Financial Corp. (COF), Bank of New York Mellon Corp. (BK), State Street Corp. (STT) and BB&T Corp (BBT).
Institutions are eager to repay their bailout money in order to free themselves from government-set restrictions on pay that they fear will make them less competitive than those that have already exited the TARP program.
Among the others who are yet to pay back TARP funds are Wells Fargo & Co (WFC), Citigroup Inc (C), PNC Financial Services (PNC), American International Group (AIG), General Motors, etc. It is now being estimated that approximately $175 billion will be repaid by the end of 2010.
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