Financial Assets and Liabilities

The federal government's actions to stabilize financial markets and to promote economic recovery following the 2008 economic crisis resulted in significant amounts of reported assets and liabilities, but as financial conditions have improved, liabilities and assets have declined. For example, financial assets and liabilities resulting from actions involving the Troubled Asset Relief Program (TARP) and government-sponsored enterprises (GSEs) have contributed to the difference between accrual and cash deficits in recent years.

Transactions Related to Fannie Mae and Freddie Mac

When the federal government placed Fannie Mae and Freddie Mac into conservatorship in September 2008, the Treasury received $7.0 billion worth of shares in the two housing GSEs and agreed to provide ongoing liquidity guarantees, in the form of quarterly cash payments, to cover the GSEs' losses. Prior to 2008, the securities these GSEs issued were explicitly not guaranteed by the full faith and credit of the U.S. government. The 2008 stock purchase agreements, while temporary, created a new fiscal exposure for the federal government to provide immediate financial support to Fannie Mae and Freddie Mac.

The government's investments in and liabilities to the GSEs affect the cash and accrual deficits differently. Fannie Mae and Freddie Mac are outside of the budget, and therefore the budget records Treasury’s direct cash payments to Fannie and Freddie as outlays, which increases the cash deficit. Conversely, the accrual deficit reflects the expenses for the estimated long-term cost of the purchase agreements but not the cash payments. The long-term cost estimate captures both the change in the fair value of the stock received from GSEs and the liability generated by the government's commitment to provide future cash payments. This liability is equivalent to the estimated future quarterly payments to cover the GSEs' net worth deficit for the life of the agreements with the GSEs.

GSE-Related Transactions (Dollars in Billions)

Fiscal year
2009 2010 2011 2012 2013
Components of accrual deficit not part of the cash deficit
Increase/(decrease) in liabilities to GSEs 78.1 268.0 -43.7 -307.2 -9.0
Increase/(decrease) in valuation loss on investments in GSEs 37.9 8.1 -3.0 42.3 -30.9
Components of cash deficit not part of the accrual deficit
(Increase) in Investments in GSEs -95.6 -52.6 -20.8 -18.6 -

The GSE’s financial performance improved in 2013. Treasury's estimate of the liability—or total future payments to GSEs—declined to zero, contributing to a reduction in the accrual deficit. There were no cash payments made to the GSEs during 2013, and the value of the stock increased in 2013 by $30.9 billion due primarily to the GSEs improved performance.

Troubled Asset Relief Program (TARP)

In October 2008, the federal government began a new program—the Troubled Asset Relief Program (TARP)—to help reestablish stability and liquidity in the financial markets. Through the TARP program, the Treasury Secretary was authorized to purchase and guarantee troubled assets, including mortgages and securities through October 2010.  As economic conditions have improved, Treasury is winding down its investments under TARP.

While assets under TARP have been decreasing, the federal government still has some assets which affect the cash and accrual deficits. As economic conditions change and actual asset performance differs from expectations, the expected cost of the financial assets acquired under TARP may change. The subsidy costs of TARP's direct loans and equity investments must be periodically re-estimated to capture actual asset performance and changes in expected future performance. Re-estimates account for any additional costs or savings to the federal government on TARP’s direct loans and equity investments. For budgetary purposes, the effect of the year end downward re-estimates (reduction of net outlays) and upward re-estimates (increase in net outlays) is not recognized until the subsequent fiscal year. As such, timing causes a difference between the accrual and cash deficits as related to the TARP re-estimates.

TARP-Related Transactions (By Fiscal Year, Dollars in Billions)

Fiscal year
2009 2010 2011 2012 2013
Components of accrual deficit not part of the cash deficit
TARP year-end upward/(downward) re-estimate $-110.0 -$23.6 $23.3 -$9.0 -$8.1
Components of the cash deficit not part of the accrual deficit
Effect of prior year TARP downward re-estimate - 110.0 $23.6 -$23.3 $9.0

Source: Unaudited Treasury data from the Financial Reports.

The Treasury estimated a lifetime cost for TARP of $40.5 billion based on a total disbursement of $421.2 billion under TARP authority, as of September 30, 2013. Market conditions and the performance of specific financial institutions will be critical determinants of TARP's ultimate cost.