(Reuters) - The U.S. government may turn a profit on its most controversial bailout programs but ordinary Americans, particularly struggling homeowners, are still not benefiting, a bailout watchdog said on Tuesday.
More than two years after the Treasury Department spend billions in taxpayer money to prop up Wall Street, the financial system has stabilized and the Treasury is recouping the funds from the Troubled Asset Relief Program.
"Not only did TARP funds help head off a catastrophic financial collapse, but estimates of TARP's ultimate direct financial cost to the taxpayer have fallen substantially," the special inspector general for TARP, Neil Barofsky, said in the report.
Treasury officials have been optimistic that the government would be able to recoup the bulk of the $700 billion bank bailout fund.
In remarks to be delivered to Congress on Wednesday, the Treasury's top bailout official, Assistant Secretary Timothy Massad, said the overall cost to taxpayers could fall as low as $25 billion to $50 billion, with most of that attributable to housing rescue efforts.
Massad added that Treasury hoped to recover most of the remaining $166 billion from other TARP programs within two years.
The inspector general's report said there is now a chance that TARP could "break even or possibly turn a profit" on its most controversial programs.
The tone of the report was a marked turnaround from Barofsky's scathing audits of a year ago, when he sharply criticized the New York Federal Reserve's handling in 2008 of the bailout of insurer American International Group (AIG.N). Timothy Geithner, who is now Treasury secretary, at the time was president of the New York Fed.
Barofsky said at the time it was unlikely that taxpayers would recoup all of the TARP bailout funds.
AIG, which at one point sucked up $182 billion in government aid, has started to turn the corner, with the insurer positioned for a massive stock offering this spring.
The report was released ahead of the House Oversight Committee's first hearing since Republicans rode a wave of anti-government sentiment to take control of the House of Representatives in January.
Committee Chairman Darrell Issa has targeted TARP as an area to expose government waste, fraud and abuse. But with TARP winding down and institutions repaying their debts, the California Republican may find fewer transgressions to prosecute.
STILL TOO BIG TO FAIL
Despite the more positive tone, Barofsky did criticize TARP for not helping ordinary Americans and not doing enough to thwart market perceptions that some large financial firms are considered too big to fail.
The Dodd-Frank financial reform bill appears not to have solved the perception problem as institutions "continue to enjoy access to cheaper credit based on the existence of the implicit government guarantee against failure," said the report.
By David Lawder and Rachelle Younglai
WASHINGTON | Tue Jan 25, 2011 6:58pm EST
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