US extends bailout authority to October 2010
US Treasury Secretary Timothy Geithner on Wednesday extended the authority of a 700-billion-dollar financial bailout to October 2010 even as he noted the program would cost less than expected.
Washington: US Treasury Secretary Timothy Geithner on Wednesday extended the authority of a 700-billion-dollar financial bailout to October 2010 even as he noted the program would cost less than expected.
Geithner said in a letter to congressional leaders that although the economic situation was stabilizing, it was prudent to continue the program known as the Troubled Asset Relief Program.
Geithner said the TARP extension "is necessary to assist American families and stabilize financial markets" and "maintain the capacity to respond to unforeseen threats."
"While we are extending the 700-billion-dollar program, we do not expect to deploy more than 550 billion dollars," he said in the letter to House of Representatives Speaker Nancy Pelosi and Senate majority leader Harry Reid.
"We also expect up to 175 billion in repayments by the end of next year, and substantial additional repayments thereafter."
Geithner exercised the authority to extend the program, previously set to expire on December 31, in the Emergency Economic Stabilization Act passed in October 2008 at the height of the financial crisis.
The program provided 700 billion dollars, targeted to stabilize a financial system reeling from a housing meltdown.
Geithner noted that the overall program cost would be 200 billion dollars less than forecast earlier this year, a figure cited Tuesday by President Barack Obama.
He also said the government expects to recover all but 42 billion dollars of the 364 billion in TARP funds disbursed in the fiscal year ended September 30, and that "we now expect a positive return from the government`s investments in banks."
Geithner said many of the TARP programs will be wound down but that the economy and financial system have not fully recovered from the near-meltdown of 2008.
"Significant challenges remain," he said.
"Too many American families, homeowners, and small businesses still face severe financial pressure. Although the economy is recovering, foreclosures are increasing, and unemployment is unacceptably high.
"Further, the recovery of our financial system remains incomplete. And near-term shocks to that system could undermine the economic recovery we have seen to date."
Obama announced Tuesday that some of the billions of dollars in funds would be diverted to job creation efforts, especially to free up frozen credit hampering the capacity of small businesses to expand and hire new workers.
Some fiscal hawks propose using all unspent or repaid TARP money to pay down the deficit, but Obama argued the need was still acute for job creation.
Although the TARP program was criticized as a bailout for unpopular banks, many economists say it helped stabilize the financial system and laid the groundwork for the economy to recover from a brutal recession.
Geithner said no new funds would be allocated from the program "unless necessary to respond to an immediate and substantial threat to the economy stemming from financial instability."
"History suggests that exiting prematurely from policies designed to contain a financial crisis can significantly prolong an economic downturn," Geithner said in his letter.
"We must not waver in our resolve to ensure the stability of the financial system and to support the nascent recovery that the administration and the Congress have worked so hard to achieve."