Treasury Secretary Timothy Geithner, in letters to lawmakers on an exit strategy for government bailout funds, said the administration will extend the life of the $700 billion financial-industry rescue package and shift priorities for expenditures.
Mr. Geithner said the Troubled Asset Relief Program will be extended through Oct. 3, 2010. “While we are extending the $700 billion program, we do not expect to deploy more than $550 billion,” he said in letters to House Speaker Nancy Pelosi (D., Calif.), Senate Majority Leader Harry Reid (D., Nev.) and four other lawmakers.
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Additionally, the Capital Purchase Program, under which the government injected funds into U.S. banks in exchange for senior preferred shares, is “effectively closed,” the letters read. However, Mr. Geithner said the Treasury will continue to provide capital to small and community banks.
The Treasury ultimately ended up with a $698.7 billion spending cap for the TARP program. Funds from the rescue package were diverted to the National Housing Trust Fund.
Of the $698.7 billion, Treasury has signed contracts committing $472.51 billion to various institutions, mostly banks participating in a program through which the government swaps capital for preferred shares, dividends and warrants.
That program has seen the largest outlays from the Treasury but also the largest inflows. While Treasury has funneled more than $204.7 billion to the effort, early repayments leave just $133.7 billion in government capital outstanding.
Mr. Geithner reiterated that the department is likely to see a positive return on the government’s bank investments and overall is expecting to “recover all but $42 billion of the $364 billion in TARP funds disbursed in fiscal year 2009.”
Treasury anticipates up to $175 billion in TARP repayments by the end of next year.
The government’s total TARP outlays stood at $366.36 billion as of October’s end, a figure that also reflects billions in aid to American auto makers and American International Group as well as incentive spending aimed at spurring mortgage loan modifications and the government’s participation in a public-private investment program.
Additionally, Treasury said it may increase its commitment to the Term Asset-Backed Securities Loan Facility, which is aimed at stimulating consumer lending, but Treasury doesn’t expect that to be an additional cost to taxpayers. The administration also plans to use TARP funds to mitigate foreclosures. Treasury allocated $20 billion for TALF.
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The department’s exit strategy also consists of how it plans to manage equity investments it acquired through government aid to U.S. companies. “We will continue to manage those investments in a commercial manner and seek to dispose of them as soon as practicable,” Mr. Geithner said in the letters.
Mr. Geithner warned the lawmakers that significant challenges remain. The Treasury Secretary cited a laundry list of problems that included increasing foreclosures, the high jobless rate, weak consumer and business confidence, limited bank lending and commercial real estate losses.
Furthermore, the financial system has not fully recovered, Mr. Geithner said. “And near-term shocks to that system could undermine the economic recovery we have seen to date,” he said. (Source: WSJ)