U.S. Treasury too rosy on bailout cost – TARP cop

* Watchdog says AIG cost estimates were misleading

* Treasury defends bailout cost estimate methodology

* Watchdog: meaningful goals needed for housing program

By Donna Smith

WASHINGTON, Oct 25 (BestGrowthStock) – 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 (AIG.N: ) was an example of using misleading numbers to
paint a positive pre-election account of the program.

The administration on Sept. 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 Nov. 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)

U.S. Treasury too rosy on bailout cost – TARP cop