Speaking before the bailout program’s Congressional Oversight Panel, U.S. Treasury Secretary Timothy Geithner today defended his extension of the program through October by outlining a four-part exit strategy he called crucial to economic recovery.
“I can report significant improvements in our financial markets and economy, as well as the positive financial results” of the bailout programs, Geithner said. “However, our job is far from finished. History suggests that exiting too soon from policies designed to contain a financial crisis can significantly prolong an economic downturn.”
In a mostly critical report on the Treasury’s bailout efforts, the oversight panel yesterday characterized government efforts to steer howeowners away from foreclosure as inadequate. The panel also said tight credit conditions persist while banks withold capital against future losses.
The panel focused its December report on whether the U.S. Treasury has properly discharged its mandate under the Emergency Economic Stabilization Act of 2008 (EESA) – the enabling legislation for the Troubled Asset Relief Program (TARP), the Treasury’s umbrella bailout program.
In response, Geither today reiterated TARP’s successes, particularly it’s investments in the banking sector. This week, he extended TARP, which was set to end Dec. 31, through October 2010.
“Banks have already repaid nearly half of TARP funds they received over the past year, and we now expect a positive return from the government’s investments in banks. We also plan to use significantly less than the full $700 billion in EESA authority,” the Treasury secretary said.
However, Geithner added he does not expect all TARP investments to generate such positive returns, especially from its bailout of insurance giant AIG and the automobile industry.
“There is a significant likelihood that we will not be repaid for the full value of our investments in AIG, GM, and Chrysler,” Geithner said. “But here too the outlook has improved. We now expect these institutions to repay $14 billion more than was originally projected.”
According to Geithner’s written testimony before the panel, here is his four-part exit strategy for TARP:
- We will continue terminating and winding down many of the government programs put in place to address the crisis. That process is already well underway.
- We must fulfill EESA’s mandate to preserve home ownership, stimulate liquidity for small businesses, and promote jobs and economic growth.
- Beyond these limited new commitments, we will not use remaining EESA funds unless necessary to respond to an immediate and substantial threat to the economy stemming from financial instability.
- We will continue to manage the equity investments acquired through EESA in a commercial manner, while protecting taxpayers and unwinding those investments as soon as practicable.
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