Geithner Set To "Unwind" Financial Sector Bailout Cautiously

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Treasury Secretary Timothy Geithner Thursday defended the administration's handling of the controversial $700 billion financial bailout bill commonly known as TARP.

The TARP, which stands for Troubled Assets Relief Program and technically refers only to one of several programs contained in the overall bill, was an important part of the "unprecedented" measures the administration has taken to stabilize the economy, Geithner said, speaking before a Congressional oversight panel.

"We are back from the edge of the abyss," Geithner said. "The consensus among private [economists] is that the economy is now growing again, the financial system is showing very important signs of repair, the cost of credit has fallen dramatically."

He added, "Because of these signs of early progress we are now in a position to start to adjust our strategy from crisis response, emergency response, to recovery."

Geithner said the Treasury, Federal Reserve and FDIC would soon begin "winding down" some of the measures they'd taken to boost the economy, but only on a measured basis with a careful eye to be sure they were not acting too quickly.

"We are borrowing less already than we expected to resolve this crisis," Geithner said, adding that the money market guarantee program, scheduled to expire later this year, will not likely be renewed.

Furthermore, Geithner said, the government's exposure in capital markets is significantly reduced from when he first took up the helm of the Treasury Department and the government has been receiving dividends on the funds it used to prop up banks. The warrants already paid back paid the government the equivalent of a 17 percent annual return, he said.

"All of these steps underscore our commitment to unwind the extraordinary programs put in place during the crisis as soon as conditions warrant it," he said. "At the same time, though, we have to recognize that we have to continue to reinforce the costs of repair and recovery until it truly self-sustaining led by private demand."

He added, "The classic errors of policy in crises is governments typically act too late, with insufficient force and then put on the brakes too early."

Geithner pledged not to repeat those mistakes, noting that to do so would ultimately cost taxpayers more than they have already pledged.

"Millions of Americans are still suffering deeply from this crisis," he said. "Unemployment is still unacceptably high. The mortgage market outside what's supported directly by Fannie [Mae] and Freddie [Mac], FHA, is still [seeing] strain." He added, "Small businesses . have less options to access credit in this difficult environment."

Those challenges, Geithner said, make it imperative for the government to keep in place programs to deal with them. Geithner also noted that the financial industry in the country is already significantly changed, with many of the largest financial institutions having consolidated as a result of the crisis.

"The financial system is going to be smaller but it's going to be stronger and that's a fundamentally healthy, desirable thing for the economy," he said. "But for that to happen the Congress of the United States needs to come join with us in passing comprehensive financial reform so we have much stronger rules of the road."

Treasury Secretary Timothy Geithner Thursday defended the administration's handling of the controversial $700 billion financial bailout bill commonly known as TARP. The TARP, which stands for Troubled Assets Relief Program and technically refers only to one of several programs contained in the overall bill, was an important part of the "unprecedented" measures the administration has taken to stabilize the economy, Geithner said, speaking before a Congressional oversight panel. (Market News Provided by RTTNews)