The $48 billion TARP puzzle

http://www.washingtonpost.com/blogs/ezra-klein/wp/2012/07/27/the-48-billion-tarp-puzzle/

Neil Barofsky’s new book on his experience as the government watchdog for the bank bailouts of late 2008 is getting a fair bit of press, both for its accusations that the White House did too much to protect its political allies in the financial sector and too little to help everyday homeowners. But another accusation is getting much less attention: He thinks the Treasury Department doesn’t know how to count.

Currently, the Treasury Department says (pdf) that the Troubled Assets Relief Program (TARP), the bailout program for which Barofsky served as inspector general, will cost taxpayers a total of $43.32 billion, when gains from it and related asset buys are taken into account, or $59.75 billion when only TARP gains are included. But Barofsky alleges in a recent Bloomberg column that these figures include revenue gains that it shouldn’t include, and excludes losses that it should include.

Specifically, the $43.32 billion figure includes gains the Treasury department made from stock of the American Investment Group (AIG) that was bought with non-TARP money. If it wasn’t bought with TARP money, Barofsky reasons, it shouldn’t be included as a TARP gain. Without considering these other shares, the higher $59.75 billion estimate is correct. Matthew Anderson, a spokesperson at the Treasury department, argued in an e-mail that including the other shares is appropriate, noting a previous report from Barofsky himself stating (pdf) that “All of these infusions to AIG are linked inextricably.” In an e-mail, Barofsky calls this characterization of his past views “laughable.” The bottom line, he says, is that Treasury is “including Fed gains as if they were part of a Treasury investment, when they were not.”

Barofsky also faults Treasury for not taking into account lost revenue due to changes in the tax treatment of AIG, General Motors, and Citigroup following their bailouts. Usually, companies are allowed to “carry forward” past losses for up to twenty years in the future to reduce their tax burdens. So if a company loses $5 billion one year and gains $7 billion the next, it can carry forward the $5 billion and only pay taxes on the $2 billion difference.