US extends bailout authority to Oct 2010

Thursday, December 10, 2009
WASHINGTON: US Treasury Secretary Timothy Geithner on Wednesday extended the authority of a 700-billion-dollar financial bailout to October 2010 even as he noted the programme would cost less than expected.

Geithner said in a letter to congressional leaders that although the economic situation was stabilizing, it was prudent to continue the programme known as the Troubled Asset Relief Programme. Geithner said the extension “is necessary to assist American families and stabilize financial markets” and “maintain the capacity to respond to unforeseen threats.” “While we are extending the 700-billion-dollar programme, we do not expect to deploy more than 550 billion dollars,” he said in the letter to House of Representatives Speaker Nancy Pelosi and Senate majority leader Harry Reid.

“We also expect up to 175 billion in repayments by the end of next year, and substantial additional repayments thereafter.” Geithner exercised the authority to extend the programme in the Emergency Economic Stabilization Act passed in October 2008, at the height of the financial crisis. The programme provided $700 billion, targeted to stabilize a financial system reeling from a housing meltdown. Geithner noted that the overall programme cost would be $200 billion less than forecast earlier this year, a figure cited on Tuesday by President Barack Obama.

He also said the government expects to recover all but $42 billion of the 364 billion in TARP funds disbursed in the fiscal year ended September 30, and that “we now expect a positive return from the government’s investments in banks.”

Geithner said many of the TARP programmes will be wound down but that the economy and financial system have not fully recovered from the near-meltdown of 2008. “Significant challenges remain,” he said.

“Too many American families, homeowners, and small businesses still face severe financial pressure. Although the economy is recovering, foreclosures are increasing, and unemployment is unacceptably high. “Further, the recovery of our financial system remains incomplete. And near-term shocks to that system could undermine the economic recovery we have seen to date.” Obama announced on Tuesday that some of the billions of dollars in funds would be diverted to job creation efforts, especially to free up frozen credit hampering the capacity of small businesses to expand and hire new workers.