The nation's economic recovery has just begun and "we still have work to do," a senior Treasury official told Congress on Thursday, the strongest signal yet that the administration is prepared to extend its $700 billion bank bailout fund.
The nation's economic recovery has just begun and "we still have work to do," a senior Treasury official told Congress on Thursday, the strongest signal yet that the administration is prepared to extend its $700 billion bank bailout fund.
Herbert Allison, the department's assistant secretary for financial stability, cited declining prices in commercial real estate that could continue to weigh down bank balance sheets as evidence there is a long way to go before a true recovery takes hold.
"In this context, it is prudent to maintain capacity to address new developments," Allison told the Senate Banking Committee. "By bolstering confidence, having such capacity may actually reduce the need to use it."
The rescue plan, known as the Troubled Asset Relief Program, is credited in part with pulling back the financial sector from near collapse last year. But its infusions of money into huge banks, the giant insurer AIG and the auto industry have been unpopular with the public and in Congress.
The Treasury Department has the option of extending the program to October 2010 so long as it provides a justification to Congress.
Allison wouldn't say whether the program would be continued, noting only that the decision must be made by Treasury Secretary Timothy Geithner.
TARP, as the program is commonly known, has been a difficult pill for politicians to swallow. Much of the money was used to assist the same institutions blamed for the financial crisis.
Moreover, Treasury has regularly sparred with the watchdog agency assigned to oversee it, and officials concede that the department will not recover all of the money it has spent on the program.
"It is extremely unlikely that the taxpayer will see a full return on its TARP investment," Neil Barofsky, the program's special inspector general, says in testimony prepared for Thursday's hearing.
In his testimony, Barofsky also complains that Treasury's approach toward public accountability "remains a significant frustration." Barofsky has repeatedly asked Treasury to release more information about how banks are using their share of the TARP money.
Sen. Richard Shelby, the top Republican on the panel from Alabama, and other GOP lawmakers say the government should end the program, whereas Democrats are expected to support the administration.
Sen. David Vitter, a Louisiana Republican, said TARP was billed as "an extraordinary response to an extraordinary threat" but is shaping up to be a permanent fixture in government.
Allison denied this, telling Vitter "we'd like to see this wound down" as quickly as possible.
Sen. Christopher Dodd, who chairs the Banking Committee, said he shares voter frustration with a Wall Street bailout at a time when people are struggling to hang on to their homes. However, he said, he didn't regret helping to orchestrate the rescue fund because it helped bring the economy back from the brink of collapse.
"With the time we were given, and the circumstances we were confronted with, I think we did the right thing, and I think history will prove that to be the case," said Dodd, a Democrat from Connecticut.
Last week, 39 Senate Republicans and one Democrat urged Geithner in a letter to end the program at the end of the year. They said the money had been used in ways not contemplated by Congress. But there is no provision for Congress to block an extension as there was when the Obama administration acted to spend the second half of the bailout fund earlier this year.
Congress approved TARP with bipartisan support in October 2008 at the request of then-President George W. Bush during the height of the financial crisis.
Bush administration officials initially said the money would be spent to buy up bad assets from financial institutions. Under Bush and Obama, however, the rescue fund has also been used to bail out the auto industry and to obtain ownership interests in banks and insurance giant American International Group.
According to the administration's latest report on TARP, the Treasury has obligated $443.8 billion from the fund to specific institutions. Banks have paid back the Treasury $70.3 billion of the assistance they received, and they have paid nearly $9.4 billion in dividends and interest payments.
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