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Cost of government bailouts headed down, but they'll still be huge

The nonpartisan Congressional Budget Office figures taxpayers will lose about $159 billion from bailouts of the financial and auto industries.

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American International Group headquarters in New York. The Congressional Budget Office estimates that the cost of the $70 billion provided to AIG from the bailout program will be $35 billion.

Mark Lennihan/AP/File

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Signs of improvement in credit markets are also providing help on another front: Official estimates of the cost of financial bailouts are heading down.

The nonpartisan Congressional Budget Office (CBO) estimates that taxpayers will lose about $159 billion from bailouts of the financial and auto industries.

In March, the CBO put the total cost of the bailouts at $356 billion.

What changed?

The earlier estimate assumed the Troubled Asset Relief Program's entire $700 billion would be spent and less than half would be repaid. The latest estimate is based on the $439 billion that the government has invested or loaned out so far.

The CBO also said it lowered its estimate because of improved financial market conditions since this spring and the repayment of $68 billion in government investments by 10 large banks recently. The budget office estimates that the government likely will lose most of the money it has provided to the auto industry, plus large amounts for the bailout of AIG.

All this runs counter to talk that the bailouts and credit-market rescues are costing trillions of dollars. And whatever the cost, many economists see the improvement in credit markets as a sign that policies by the Federal Reserve and Treasury are working to repair many of the broken sectors of the financial system.

Banks are making progress at working through bad loans, and using the profits on good loans to cover their losses. That has allowed some of them to repair the investments that they received from the Treasury during the period of market panic last fall.

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