Geithner seeks extended TARP

WASHINGTON – A day ahead of testimony in which he’s sure to be grilled about the controversial taxpayer-funded bank bailout program, Treasury Secretary Timothy Geithner announced Wednesday that he wants to extend it into late 2010.

“History suggests that exiting prematurely from policies designed to contain a financial crisis can significantly prolong an economic downturn,” Geithner wrote in a letter Wednesday to House Speaker Nancy Pelosi, D-Calif.

The Troubled Asset Relief Program, known as TARP, will continue until Oct. 3, 2010, Geithner said, arguing for prudence in keeping an unpopular program afloat until almost the end of next year.

“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 Congress have worked so hard to achieve,” he said.

The letter included an exit strategy for getting out of the $700 billion TARP, which passed during the Bush administration and is widely credited by economists for stabilizing a global banking system on the verge of collapse.

Instead of exiting the TARP, Geithner said its unused balance could still be used to support foreclosure prevention, to bolster the ability of community banks to lend to small businesses and to help efforts to restore activity in secondary bond markets where loans are pooled together and packaged for sale to investors.

If economists think the TARP was successful in easing the financial crisis, many Americans found the idea of using taxpayer money to rescue Wall Street downright offensive. That’s why Democrats and Republicans alike want the TARP to end. Banks also want the program to end, with Bank of America and J.P. Morgan Chase repaying their TARP funds and Wells Fargo and Citigroup trying to do the same to avoid the stigma of government support.

Geithner is expected to get an earful when he testifies today, for the third time this year, in front of the Congressional Oversight Panel, created when Congress passed the TARP to be a watchdog for the rescue effort. That panel Wednesday issued a 181-page report on what the TARP has and hasn’t achieved.

“The evolving nature of the TARP, as well as Treasury’s failure to articulate clear goals or to provide specific measures of success for the program, make it hard to reach an overall evaluation,” the report said.

In a teleconference with reporters, panel Chairwoman Elizabeth Warren said the TARP was effective in stopping a spreading panic in financial markets. However, she said, the TARP also was supposed to support the broader economic recovery by stemming foreclosures and boosting lending to consumers, and in those aspects it’s fallen far short.

Of the $700 billion authorized for TARP in late 2008, the Treasury Department now expects to deploy just $550 billion. It also expects up to $175 billion in TARP repayments by the end of next year, and this week Treasury announced it expects the TARP will cost taxpayers $200 billion less than anticipated.