Accountants Bail Out the Treasury

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A few weeks back, I said that TARP -- the $700 billion bank bailout program -- was done. Finished. History. And it looked like it was. The main segments of the program -- like buying stakes in banks -- would be sealed off, as banks like Goldman Sachs (NYSE: GS), American Express (NYSE: AXP) and JPMorgan Chase (NYSE: JPM) repaid funds, while troubled companies like GM, Bank of America (NYSE: BAC) and Citigroup (NYSE: C) hit the road to recovery.

That was then. This week, Office of Management and Budget Director Peter Orszag had this to say: "We're reorienting TARP toward assistance for responsible families and lending for small businesses."

Wonderful. Back from the dead, TARP could be reborn, just without a focus on banks. If so, may I recommend the Treasury change the acronym? Referring to American families as "troubled assets" might not go over too well.

Anyway, TARP's new format isn't set in stone, and Orszag also mentioned that "the question that arises as part of that is whether, while maintaining flexibility to deal with future financial crises, one can also free up some resources for debt reduction."

Great! So, if TARP does actually succumb to the sweet embrace of death, we'll relieve taxpayers from the burden of mounting deficits. Right?

Sort of. Most of the alleged savings would come from TARP's unspent funds, which equal somewhere between $200 billion-$300 billion. This money, though, sits with the Treasury, and would go back to the Treasury. If you think that sounds like a bunch of accounting chicanery, you're right. Reuters quotes a source that explains the matter far better than I can:

The US government has already issued the debt for the funds and any unused money would logically be used to retire that debt. There is about $300bn in unspent TARP funds now. But none of that can be used as deficit reduction. Why? Because the money has not been spent yet. And is it really $300bn? Absolutely not, the administration decided to change the accounting to a net present value basis. So any savings would be negligible. The punchline: This story makes a great headline against the concerns over deficits, but will have zero impact on debt issuance and the deficit.

Well, hey. We tried. Now, if the folks in Washington could go focus on real ways to reduce the deficit -- not just saving money by not spending money that was never there -- we'd appreciate it.