Treasury Leaves TARP on the Field
Posted by Larry Doyle on December 9, 2009 12:15 PM |
We learned all we need to know about the economy today. How so? The fact that Treasury Secretary Geithner has chosen to extend the TARP (Troubled Asset Relief Program) to October 2010 is a clear indication that our economy, primarily housing and employment, needs Uncle Sam’s support.
While Geithner couches this support in terms of “just in case,” we should not be so naive. The American Banker highlights this development in writing, Treasury Extends Tarp to 2010:
The Treasury Department announced Wednesday that it would extend the Troubled Asset Relief Program to Oct. 3, 2010.
In a letter to lawmakers, Treasury Secretary Tim Geithner cited improvements in the economy but said Tarp must be extended due to remaining challenges for homeowners and small businesses.
That’s right. The outlook for housing and jobs remains challenged, all assertions to the contrary aside.
“This extension is necessary to assist American families and stabilize financial markets because it will, among other things, enable us to continue to implement programs that address housing markets and the needs of small businesses, and to maintain the capacity to respond to unforeseen threats,” Geithner wrote.
Unforeseen threats? Come on, Tim. Be straight with us. Try ongoing bank failures due to losses on loans.
The secretary said he would limit the use of the program to a few areas: mitigating foreclosures, helping small businesses, providing capital to community banks, and increasing the Term Asset Backed Securities Loan Facility.
How do we interpret this? Housing and jobs remain under pressure due to ongoing lack of credit.
Geithner said he would only use Tarp for other purposes if they were necessary to stabilize the financial industry. He said he would first consult with the president and the chairman of the Federal Reserve Board as well as submit written notification to Congress before taking other actions. He warned emergency actions might still be necessary.
All those billions, actually trillion plus, in embedded losses on the bank balance sheets still need capital reserves.
“As we wind down many of the government programs launched initially to address the crisis, it is imperative that we maintain this capacity to respond if financial conditions worsen and threaten our economy,” he wrote. “This capacity will bolster confidence and improve financial stability, thereby decreasing the probability that it will need to be used.”
If financial conditions worsen or when they worsen as Uncle Sam’s backstops are pulled away.
Geithner reiterated that the program is expected to cost less than originally estimated, and said he did not think Treasury would use all $700 billion initially allocated to it.
“While we are extending the $700 billion program, we do not expect to deploy more than $550 billion,” he said. “We also expect up to $175 billion in repayments by the end of next year, and substantial additional repayments thereafter. The combination of the reduced scale of Tarp commitments and substantial repayments should allow us to commit significant resources to pay down the federal debt over time and slow its growth rate.”
What’s this statement? Nothing short of a ‘paid political advertisement’ for the reelection of all those supporting the administration.