Corporate America appears to be feeling a little fatter these days and that, in turn, is prompting the Treasury Department to slim down its estimates on the cost of the $700 billion bailout that Congress passed in 2008.
A year ago, the cost was expected to be more than $250 billion, based on figures crunched by the Congressional Budget Office and Office of Management and Budget. But the Treasury Department is now estimating that the real price of the bailout to taxpayers could drop to approximately $89 billion, according to a report in The Wall Street Journal.
The reason for these more optimistic numbers is in part based on the Treasury Department's increasingly bullish feeling that the recovery in the markets will allow its debtors to repay their bailout loans, and that the rise in stock values may lead to it making a profit when the government sells its stakes in those companies it now partially owns.
For example, American International Group (AIG) may be able to repay some of its bailout loans via $51 billion in asset sales, which would allow the government to step back from its 80% stake in AIG within a year, the Journal reported.
The Treasury Department is also expected to cash in when it sells its $32 billion stake in Citigroup (C), and it could potentially recoup $6.7 billion in bailout funds from General Motors, which is looking to launch an IPO this summer, according to the report.
Still More Bloat Ahead?
Add to those numbers the more than $68 billion forked over by 10 banks last summer to repay the bailout funds loaned to them by the government. Subtract that total from the original $250 billion figure, and you'll get a number within a governmental rounding-error of the $89 billion now being estimated as the cost of the bailouts.
Although taxpayers may cheer the prospect of reducing the costs of the bailout, there may be some bloat down the line. The $89 billion estimation doesn't include the billions in anticipated losses at Fannie Mae and Freddie Mac, which received $125.9 billion in funding, according to the report. Both Fannie and Freddie are deemed private entities by the White House and, as a result, their potential future losses aren't counted in the bailout cost formula, though the taxpayers could get stuck paying the tab for them.
The White House, however, apparently has a few ideas in mind for Fannie and Freddie. Last month, the Obama administration said it plans a major reform of the government-sponsored enterprises. If that also lowers the cost of the overall bailout(s), all the better.
Small Cap Investing
Learn now to invest in small companies the right way.View Course »