The government’s bailout program is working and costing taxpayers less than anticipated – but will be extended until October 2010 to help more small businesses secure credit and rescue more homeowners from foreclosure, Treasury Secretary Timothy Geithner said today.
The bailout program extension would also serve as a safegaurd against any “immediate and substantial threat to the economy stemming from financial instability,” he said.
In identical letters sent today to House Speaker Nancy Pelosi and Senate Majority Leader Harry Reid, Geithner said the government’s primary bailout program, the Troubled Asset Relief Program (TARP) is working.
“These policies are working,” Geithner wrote. “Credit is starting to flow again to consumers and businesses, and the economy is growing. Further, private capital is replacing public capital in our major institutions.”
He said banks have repaid nearly half of the TARP funds they received. And the Treasury expects to recover all but $42 billion of the $364 billion in TARP funds disbursed in fiscal year 2009.
Overall, the Treasury expects to use significantly less that the full $700 billion authorized under the Emergency Economic Stabilization Act of 2008 (EESA).
“As a result, we expect that TARP will cost taxpayers at least $200 billion less than was projected in the August mid-session review of the president’s budget,” Geithner wrote.
Geithner said the Treasury’s commitments in 2010 will be limited to these three areas:
- We will continue to mitigate foreclosure for responsible American homeowners as we take the steps necessary to stabilize our housing market.
- We recently launched initiatives to provide capital to small and community banks, which are important sources of credit for small businesses. We are also reserving funds for additional efforts to facilitate small business lending.
- Finally, we may increase our commitment to the Term Asset-Backed Securities Loan Facility (TALF), which is improving securitization markets that facilitate consumer and small business loans, as well as commercial mortgage loans.
Geithner added that he didn’t expect the increasing demands on TALF would result in additional cost to taxpayers.
“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,” Geitherner wrote.
“As a nation, we must maintain capacity to respond to such a threat. Banks are still experiencing significant new credit losses, and the pace of bank failures, which tend to lag economic cycles, remains elevated. At the same time, many of the Federal Reserve and FDIC programs that have complemented TARP investments are ending.”