TARP: Where Taxpayer Money Goes to Die

Remember the report last week that suggested the TARP had already turned a profit? Specifically, Senator Judd Gregg stated that the TARP had made $8 billion in its first three months.

Well, scratch that.

The Congressional Budget Office issued its first semiannual report assessing the costs of the TARP assets today, and it flies in the face of Gregg's estimates.

Not only has the TARP not turned a profit, the CBO report states, it has actually lost $64 billion as of December 31, 2008. Judging by what's happened to the banking sector since then, the portfolio's performance year-to-date can only be worse.

The CBO report was based on the assets purchased with the first $247 billion of the initial $350 billion tranche. That means the portfolio has lost 26 percent of its value in less than three months.

Ouch. Plenty of out-of-work hedge fund managers can do better than that.

The CBO calculated the $64 billion "cost" of the program by assessing the market value of the assets against their purchase price by using "an appropriate discount factor that reflects the riskiness of the underlying cash flows associated with the asset."

It's not exactly clear how the number crunchers on Capitol Hill were able to calculate that discount factor considering so many of their Wall Street counterparts seem stumped by it.

by Megan Barnett