WASHINGTON (AP) — The Treasury Department official in charge of overseeing the government’s $700 billion bank bailout program says the nation’s economic recovery has just begun and that “we still have work to do.”
Herbert Allison, the department’s assistant secretary for financial stability, said the nation has a long way to go before a true recovery takes hold.
His remarks, included in prepared testimony for a hearing on Thursday before the Senate Banking Committee, suggest that the administration is in no hurry to let the bailout program expire at the end of the year. The Treasury Department has the option of extending the program to October 2010 so long as it provides a justification to Congress.
THIS IS A BREAKING NEWS UPDATE. Check back soon for further information. AP’s earlier story is below.
WASHINGTON (AP) — The Obama administration is signaling that it is in no hurry to let the $700 billion financial bailout program expire at year’s end amid continuing stress on the economy and the banking system.
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.
Nevertheless, the Treasury Department has the option of extending the program to October 2010, provided it justifies the continuation to Congress by Dec. 31.
“We still have a very damaged system,” Treasury Secretary Timothy Geithner told lawmakers Wednesday when asked if he planned to end the program by the end of this year. “Important that we not declare victory too soon, (and) walk this back prematurely.”
The program will be the subject of a hearing Thursday before the Senate Banking, Housing and Urban Affairs Committee.
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 Treasury 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.
Last week, 39 Senate Republicans and one Democrat wrote Geithner a letter urging him 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 disapprove of an extension as there was when the Obama administration acted to spend the second half of the bailout fund earlier this year.
Industry experts and Obama administration officials warn that the financial sector, while more stable, is still vulnerable. Foreclosures are still rising, unemployment is expected to remain high for months, banks still hold bad assets on their balance sheets and the commercial real estate market poses a significant threat to small banks whose failure rate has not abated.
Many economists warn that a too-slow recovery could dip into recession again.
“It is too early for anyone to declare victory,” Geithner told members of the House Financial Services Committee on Wednesday.
Speaking to reporters after the hearing, committee Chairman Barney Frank, D-Mass., said the program should be extended.
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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