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CBO Backs Treasury on AIG Cost Projections

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WASHINGTON BUREAU — The Congressional Budget Office (CBO) has slashed its estimate of the government’s cost of bailing out American International Group Inc. (AIG) to $14 billion, down from an estimate of $36 billion published in March.

Analysts at the CBO now say the total cost of the 2-year-old Troubled Asset Relief Program (TARP) will be $25 billion, down from an a estimate of $66 billion published in August and a projected total loss estimate of $109 billion published in March.

The losses stem from AIG, aid to the automobile industry, and grant programs aimed at helping consumers avoid foreclosures, the CBO says.

Other transactions with financial institutions will, when taken together, yield a net gain to the federal government, the CBO estimates.

The Treasury Department recently estimated the government will lose only $5 billion on investments in AIG.

The decline in the estimated cost of bailing out AIG has decreased because of a restructuring of the debt through an agreement with the Treasury Department in September.

Treasury agreed to exchange its existing AIG preferred stock for about 1.1 billion shares of AIG common stock. CBO based most of the lower projections of the cost of bailing out AIG on the rising value of AIG stock.

The CBO says AIG received TARP assistance in two forms: through $40 billion in purchases of preferred stock by the Treasury Department and through the creation of a $30 billion line of credit for the company.

As of Sept. 30, all of the preferred stock remained outstanding, and about $7.5 billion had been drawn from the line of credit; in addition, AIG failed to pay the quarterly cash dividends due on the Treasury Department investments, The CBO says.

The CBO estimates are different from the estimates published by TARP’s independent auditor.

The independent auditor, in a report in October, included a chart indicating that the government only authorized $176.5 billion in aid to AIG, but that, at its peak, total aid reached $191.4 billion. As of Sept. 30, the end of the government fiscal year, the outstanding balance on the various facilities was $123.3 billion, according to the auditor.