Treasury too rosy on bailout cost: TARP cop

WASHINGTON Mon Oct 25, 2010 3:13pm EDT

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WASHINGTON (Reuters) - The Obama administration's latest estimate of taxpayer costs of the Wall Street bailout is too rosy and could ultimately damage public trust in government, the top bailout cop said on Monday.

In its quarterly report to Congress, the Special Inspector General for the Troubled Asset Relief Program said the Treasury Department's bailout cost estimate for American International Group was an example of using misleading numbers to paint a positive pre-election account of the program.

The administration on September 30 slashed its estimate of the overall cost of the U.S. financial bailout by more than half to less than $50 billion on the back of a new plan to sell the government's stake in insurer AIG.

The SIGTARP report said the Treasury Department, in coming up with the fresh estimate, had changed its calculation method to estimate a $5 billion cost for AIG. That was a shift from an earlier projection of $45 billion that used a broader measure to calculate the cost.

Public anger at the bailout of Wall Street has been a major factor in congressional races ahead of a November 2 election in which Republicans are poised to make major gains against Democrats who now control Congress.

The Treasury failed to make clear it had changed its calculation method and that it was relying solely on recent stock market prices for AIG shares in making the new estimate, the SIGTARP report said. It concluded that Treasury needed more transparency in its public disclosures about TARP costs.

"This conduct has left Treasury vulnerable to charges that it has manipulated its methodology for calculating losses to present two different numbers depending on its audience," the report said.

A different set of numbers will be reported to the Government Accountability Office for an assessment of the program that is set to be released in November, it said.

"Treasury's unfortunate insensitivity to the values of transparency has led it to engage in conduct that risks further damaging public trust in government," the report said.

Republican Senator Charles Grassley said the quarterly report showed a pattern of the administration trying to cast the bailout in the most favorable light.

"It raises the question of whether administration officials are trying so hard to put a positive spin on program losses that they played fast and loose with the numbers," he said.

"You can't change the way you calculate losses to come up with a rosy scenario in October and then go back to the real numbers in November without seriously damaging your credibility with the American people," Grassley added.

Treasury officials said the AIG estimate reflected a recapitalization plan that shifted preferred stock the government holds to common stock and that the Treasury's report made that clear.

"It's a complicated recapitalization plan, but I don't think there is any lack of transparency by the Treasury in the way in which we were valuing the position either in the retrospective or previously," Jim Millstein, chief restructuring officer at the Treasury Department, told reporters in a conference call.

The department in that retrospective estimated the $700 billion TARP program would end up costing taxpayers about $50 billion and once the government sold its AIG shares, the cost would drop to about $30 billion.

SIGTARP also criticized the department for failing to heed suggestions that it set "meaningful benchmarks and goals" for the government program that is supposed to help struggling homeowners who face foreclosure.

"As a result, a program that began with much promise now must be counted among those that risk generating public anger and mistrust," it said. The report urged the Treasury Department to "acknowledge" the failings of the Home Affordable Modification Program and publish more "meaningful" goals.

(Reporting by Donna Smith; Editing by Chizu Nomiyama)

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