Thursday, March 18, 2010

CBO Bullish on TARP and Autos

I never thought that I’d be calling the Congressional Budget Office (CBO) a hidden bullpen. In large part because the CBO doesn’t typically analyze investments and it definitely doesn’t give advice to investors on where their money should be. The TARP and other components of the 2008 bailout have changed the workings of CBO a bit. Now that the US government owns shares (or the right to buy shares through warrants) in many companies, CBO’s reports now include a bit of corporate forecasting.

In its latest report, CBO estimates that TARP will cost taxpayers less than predicted by the White House’s Office of Management and Budget.

CBO estimates the program will cost $109 billion. That figure is $18 billion less than the $127 billion predicted by OMB. CBO gets the lower cost in two ways, first by estimating that the government will recover an additional $14 billion form its loans to AIG. Given that only a small portion of AIG’s business (and not a part of its namesake insurance business) was the hardest hit by the crisis it’s encouraging that the firm may be better able than expected to repay.

CBO’s second “savings” is more normatively ambiguous. CBO predicts that the Home Affordable Modification Program, which gives direct grants to homeowners will cost less than OMB predicts. CBO admits that these grants were never meant to be repaid. So the only way that CBO obtains a lower cost is by assuming that Treasury doesn’t spend all the money allocated to the program. If the government spent less because no one was losing their home, we’d cheer but numerous reports have shown that the program can be too slow to help homeowners, or just deny them help outright. So the Treasury spends less outright but it’s not clear the economy gets in better shape.

Lastly, yesterday’s report takes a buoyant view of the auto company loans. I’ve been crucial of these loans several times in the past. In an early auto loans report, CBO predicted a subsidy rate (the amount of money that will not be paid back) at 64 cents on the dollar. That figure has declined over time, even though little money has yet to be paid back. In the most recent report CBO expects the taxpayers will only lose 41 cents on the dollar. GM’s CFO Chris Liddell must share CBO’s improved outlook, saying that GM could profit as early as this year. I’m not surprised there but I am that CBO beat him to showing optimism. Although I must admit, I'm glad for it.

Wednesday, March 10, 2010

Massa's Confused Inheritance

Having watched much of Glen Beck's interview with former Rep. Eric Massa, I can say little actual policy was discussed. I did miss one great policy gem in Massa's babble though. Washington Post columnist Dana Milbank quotes Massa today as having said:

"You can't show up at a 'tea party' rally and claim that the entire budget deficit happened this year."
Actually you can, in fact that's the definition of a budget deficit. A deficit happens every year and goes into the budget as such. Massa was trotting out an old line about the debt, not the deficit. When President Obama came to office there was a government debt of about $12 trillion. Yet President Obama has now submitted two budgets. In those instances he could have driven the deficit to zero; doing so would not have solved the debt. Although it would have kept the debt from growing more.
Obama has actually promised to reduce the deficit in half by 2013. Doing so is a step in the right fiscal direction. Yet it would only put a small dent in the national debt. Much of which was accurred and continues to build under entitlements like Social Security and Medicare.
Massa may well have misspoken but the comment reveals just how difficult it is to separate out the debt and the deficit. When our (former) Congressmen misconstrue the two, it's even more encouraging when those showing up at tea parties often have it right.