While Many TARP Programs Continue to Wind Down, Others Remain Active

TARP programs continue to wind down, and some programs have ended. In an upcoming report, we plan to describe the financial  condition of the remaining CPP institutions and compare them with  institutions that already exited and those that never participated. Treasury’s timing of its exit from GM and Ally Financial—and ultimate  return on its investment—will depend on how it balances its competing  goals of maximizing taxpayer returns and selling its shares as soon as  practicable. Treasury officials said that the agency  would work to avoid economic losses during this exit. Treasury Continues to Address Staffing Needs While Also Relying on Financial Agents and Contractors to Support TARP Administration and Programs

		OFS Staffing Declined Slightly for the First Time and Treasury Is Addressing Turnover-Related Staffing Issues

As we have identified in previous reports, Treasury still faces staffing  challenges, including recent turnover stemming from the departure of  term-appointed staff, but it has been addressing these challenges. For example, in the Chief  Investment Office—which includes staff working on various TARP  programs, such as CPP—more than half of the staff departed from June  2010 to September 2011 (a decrease of 20 staff from 2010). OFS also plans to conduct succession planning for  other staff below the management level. Through fiscal year 2011,  Treasury awarded 17 financial agency agreements, of which 14 remain  active. Although Estimated Lifetime TARP Costs Have Decreased Significantly, Treasury Could Enhance Its Communication about the Costs of TARP

While lifetime cost estimates for TARP have decreased since the  government first provided assistance in 2008, the lifetime cost and  income estimates for specific TARP programs have fluctuated with  changes in program activity and the market value of Treasury’s TARP  investments. Moreover, indirect costs such as  moral hazard are also associated with TARP and remain a concern. In 2009, the  Congressional Budget Office (CBO) estimated that TARP could cost $356  billion. Treasury’s fiscal year 2011 financial  statement, audited by GAO, reported that TARP would cost around $70  billion as of September 30, 2011, a decrease from about $78 billion  estimated as of September 2010. Furthermore, it appears that over the last 2 years Treasury has included  lifetime cost estimates in some of its program-specific press releases for  programs expected to result in a lifetime income, while excluding these  estimates for programs expected to result in a cost for taxpayers. investment in the programs and revenues received. However, by improving the clarity of its communication on  the costs of TARP through consistently incorporating lifetime cost  estimates into its program press releases, Treasury could reduce  potential confusion and misunderstanding of TARP’s results. Such communications about specific programs include  information about estimated lifetime costs and income only when  programs are expected to result in lifetime income and not when they are  expected to result in a lifetime cost. Recommendation for Executive Action

To enhance transparency about the costs of TARP programs as Treasury  unwinds its involvement, we recommend that the Secretary of the  Treasury enhance Treasury’s communications with the public, in  particular Treasury’s press releases, about TARP programs and costs by  consistently including information on estimated lifetime costs, especially  when reporting on program results. For example, Treasury should  consider including lifetime cost estimates, or references to Treasury  reports that include such information, in its press releases about specific  programs. Treasury stated that it will implement our recommendation by  including a link to its Monthly 105(a) Report, which contains cost  estimates for each TARP program, in its future program-specific press  releases. Appendix I: Scope and Methodology

To assess the condition and status of all programs initiated under the  Troubled Asset Relief Program (TARP), we collected and analyzed data  about program utilization and assets held, as applicable, focusing  primarily on financial information that we had audited in the Office of  Financial Stability’s (OFS) financial statements, as of September 30,  2011. We also examined Treasury documentation such as program terms,  decision memos, press releases, and reports on TARP programs and  costs. To update the status of the American International Group, Inc. (AIG)
Investment Program (formerly the Systemically Significant Failing  Institutions Program) we reviewed relevant documents from Treasury  and other parties. To  assess OFS’s progress in strengthening its infrastructure for managing  and overseeing the performance of TARP financial agents and  contractors and addressing conflicts of interest that could arise with the  use of private sector firms, we reviewed various documents and  interviewed OFS officials about changes in fiscal year 2011 to its policies  and procedures regarding (1) management and oversight of TARP  financial agents and contractors and (2) monitoring and oversight  activities by the OFS team responsible for financial agent and contractor  compliance with TARP conflicts-of-interest requirements. To ascertain what is known about TARP costs, we reviewed the cost  reporting of CBO, the Office of Management and Budget (OMB), and  Treasury, including the credit reform accounting methods used to develop  cost estimates for TARP programs. Targeted Investment Program

The Targeted Investment Program was designed to foster market stability  and thereby strengthen the economy by investing in institutions on a  case-by-case basis that Treasury deemed critical to the functioning of the  financial system.
Why GAO Did This Study

The Emergency Economic Stabilization Act of 2008 authorized the Department of the Treasury (Treasury) to create the Troubled Asset Relief Program (TARP), a $700 billion program designed to restore the liquidity and stability of the financial system. The act also requires that GAO report every 60 days on TARP activities. This report examines (1) the condition and status of TARP programs; (2) Treasurys management of TARP operations, including staffing for the Office of Financial Stability (OFS) and oversight of contractors and financial agents; and (3) what is known about the direct and indirect costs of TARP. To do this work, GAO analyzed audited financial data for various TARP programs; reviewed documentation such as program terms and internal decision memos; analyzed TARP cost estimates from the Congressional Budget Office (CBO), the Office of Management and Budget, and Treasury; and interviewed CBO and OFS officials.

What GAO Found

Many TARP programs continue to be in various stages of unwinding and some programs, notably those that focus on the foreclosure crisis, remain active. The figure provides an overview of selected programs and the amount disbursed and outstanding, as applicable. Treasury has articulated broad principles for exiting TARP, including exiting TARP programs as soon as practicable and seeking to maximize taxpayer returns, goals that at times conflict. Some of the programs that Treasury continues to unwind, such as investments in American International Group, Inc. (AIG), require Treasury to actively manage the timing of its exit as it balances its competing goals. For other programs, such as the Capital Purchase Program (CPP)which was created to provide capital to financial institutionsTreasurys exit will be driven primarily by the financial condition of the participating institutions. Consequently, the timing of Treasurys exit from TARP remains uncertain.
Treasury continues to manage the various TARP programs using OFS staff, financial agents, and contractors. Overall OFS staffing has declined slightly for the first time as staff responsible for managing TARP investment programs and those in term-appointed leadership positions have departed. However, staff in some offices within OFS have increasedfor example, in the Office of Internal Review, which helps to ensure that financial agents and contractors comply with laws and regulations. Through September 30, 2011, about half of Treasurys 116 contracts remained active, along with 14 of the 17 financial agency agreements. Treasury has continued to strengthen its management and oversight of contractors and financial agents and conflict-of-interest requirements. In response to a GAO recommendation, OFS has finalized a plan to address staffing levels and expertise that includes identifying critical positions and conducting succession planning, in light of the temporary nature of its work.
Treasury and CBO project that TARP costs will be much lower than the amount authorized when the program was initially announced. Treasurys fiscal year 2011 financial statement, audited by GAO, estimated that the lifetime cost of TARP would be about $70 billionwith CPP expected to generate the most lifetime income, or net income in excess of costs. OFS also reported that from inception through September 30, 2011, the incurred cost of TARP transactions was $28 billion. Although Treasury regularly reports on the cost of TARP programs and has enhanced such reporting over time, GAOs analysis of Treasury press releases about specific programs indicate that information about estimated lifetime costs and income are included only when programs are expected to result in lifetime income. For example, Treasury issued a press release for its bank investment programs, including CPP, and noted that the programs would result in lifetime income, or profit. However, press releases for investments in AIG, a program that is anticipated to result in a lifetime cost to Treasury, did not include program-specific cost information. Although press releases for programs expected to result in a cost to Treasury provide useful transaction information, they exclude lifetime, program-specific cost estimates.
Consistently providing greater transparency about cost information for specific TARP programs could help reduce potential misunderstanding of TARPs results. While Treasury can measure and report direct costs, indirect costs associated with the moral hazard created by the governments intervention in the private sector are more difficult to measure and assess.

What GAO Recommends

Treasury should enhance its program-specific press releases to the public by consistently including lifetime cost estimates when reporting on program activities and results. Treasury agreed with our recommendation and plans to implement it by including a link to its cost reporting in future TARP program-specific press releases.