Bailout cost unknown - CBO

Budget agency can't give an estimate. But given the assets the Treasury would buy, they would return value.

EMAIL  |   PRINT  |   SHARE  |   RSS
 
google my aol my msn my yahoo! netvibes
Paste this link into your favorite RSS desktop reader
See all CNNMoney.com RSS FEEDS (close)
By Jeanne Sahadi, CNNMoney.com senior writer

double_money_bags.cr.03.jpg
What's your view about granting taxpayers stock in any company taking part in the proposed $700 billion bailout?
  • It's needed to approve the plan
  • The plan should be approved with no conditions
  • No bailout in any form

NEW YORK (CNNMoney.com) -- Average Americans aren't the only ones who think they don't have enough information to assess the Treasury's proposal to buy up to $700 billion of troubled mortgage assets.

Even one of the country's top bean counters can't say with certainty how much the plan will ultimately cost taxpayers, if anything.

The Congressional Budget Office says that it is "impossible" to estimate the bottom line cost of the Treasury's bailout proposal given its lack of specificity.

However, in testimony before the House Budget Committee on Wednesday, CBO Director Peter Orszag said that the CBO expects the net cost to be "substantially less" than the $700 billion requested by the Bush administration.

"It seems implausible that the U.S. would lose every cent on the dollar for the purchases it made," Orszag said.

That's because under the proposed program, which is being debated feverishly in Congress, Uncle Sam would buy assets that have underlying value.

If it overpays, the government could be left with a net loss. If he pays fair market value - which investors have had a hard time determining - taxpayers stand a chance to break even or make a profit if those assets throw off income or appreciate in value by the time the government sells them.

Lawmakers on the committee expressed concern over whether the the program would drive up the cost of federal government borrowing - a particularly important issue since the federal budget deficit this year is expected to reach$407 billion and climb higher next year.

The government borrows a lot of the money the country spends. And if buyers of U.S. debt become concerned Uncle Sam may be under strain to repay them, they may demand a higher interest rate when they buy Treasurys.

Orszag said rates could go up if the market suspects or is uncertain about whether the Treasury overpaid for assets in the bailout.

When asked what the ramifications might be if lawmakers reduced or increased the amount of money the Treasury could invest in this venture, Orszag said, "it's in no small part a confidence game." That is, the market has been led to believe the country will put $700 billion into this effort, so it can be risky to change those expectations at the last minute.

And what if lawmakers don't pass a bailout plan?

"Being able to obtain credit is crucial for households and firms," Orszag said. If sources for liquidity dry up - and, he said, there are already "ominous signs pf credit difficulties are accumulating" - "we'll have severe turmoil in the real economy."

For those who wonder how this turmoil can affect them, Orszag said, "It will come home in the form of your company being unable to fund its operations and the rates you'll pay for a mortgage and car loan. Those kinds of effects come sometime after the financial market turmoil begins, but they do come."

For the economy as a whole, "you'd have a financial meltdown and it would cause very serious economic dislocation on the order of Great Depression effects," he said.

Put simply, Orszag said, "it would be a very bad situation." To top of page

Features
They're hiring!These Fortune 100 employers have at least 350 openings each. What are they looking for in a new hire? More
If the Fortune 500 were a country...It would be the world's second-biggest economy. See how big companies' sales stack up against GDP over the past decade. More
Sponsored By:
More Galleries
10 of the most luxurious airline amenity kits When it comes to in-flight pampering, the amenity kits offered by these 10 airlines are the ultimate in luxury More
7 startups that want to improve your mental health From a text therapy platform to apps that push you reminders to breathe, these self-care startups offer help on a daily basis or in times of need. More
5 radical technologies that will change how you get to work From Uber's flying cars to the Hyperloop, these are some of the neatest transportation concepts in the works today. More
Sponsors

Most stock quote data provided by BATS. Market indices are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer. Morningstar: © 2018 Morningstar, Inc. All Rights Reserved. Factset: FactSet Research Systems Inc. 2018. All rights reserved. Chicago Mercantile Association: Certain market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. Dow Jones: The Dow Jones branded indices are proprietary to and are calculated, distributed and marketed by DJI Opco, a subsidiary of S&P Dow Jones Indices LLC and have been licensed for use to S&P Opco, LLC and CNN. Standard & Poor's and S&P are registered trademarks of Standard & Poor's Financial Services LLC and Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC. All content of the Dow Jones branded indices © S&P Dow Jones Indices LLC 2018 and/or its affiliates.