Five myths about TARP, according to Treasury Secretary Tim Geithner

The Troubled Asset Relief Program officially ended last week, and many Americans are wondering about how the money was spent. To clear up misunderstandings surrounding the program, Treasury Secretary has personally penned an article for the Washington Post on 5 common myths about TARP. You can find a segment of Geithner’s article below.

Born at the peak of the financial crisis in 2008, the Troubled Asset Relief Program expired last week, ending what was perhaps the most maligned yet most effective government program in recent memory. Despite new evidence about the low ultimate cost and positive impact of the TARP, there is still a chasm between the perceptions of the program and its overwhelmingly favorable effect on the U.S. economy.

The TARP was doomed to be unpopular from inception, because Americans were rightfully angry that the same firms that helped create the economic crisis got taxpayer support to keep their doors open. But the program was essential to averting a second Great Depression, stabilizing a collapsing financial system, protecting the savings of Americans and restoring the flow of credit that is the oxygen of the economy. And it helped achieve all that at a lower cost than anyone expected.

As we put the TARP to rest, let's also put to rest some of the myths about the TARP.

The TARP cost taxpayers hundreds of billions of dollars.

1. The true cost of the financial crisis will always be measured by the devastating losses of jobs, homes, businesses, retirement savings and fiscal revenues. But the cost of the TARP, which succeeded in reducing the overall economic damage, will be considerably lower than once feared. In fact, the direct budget cost of the program and our full investment in the insurer AIG is likely to come in well under $50 billion -- $300 billion less than estimated by the Congressional Budget Office last year. And taxpayers are likely to receive an impressive return (totaling tens of billions) on the investments made under the TARP outside the housing market.

Continue reading at Washington Post.com…

Regulatory Squabbles Threaten Financial Reform

From MarketWatch.com:

The initial confrontation before the Senate Banking Committee didn’t come from the expected parties, Sheila Bair of the Federal Deposit Insurance Corp. or Treasury Secretary Timothy Geithner. It was between Geithner deputy Neal Wolin and the committee chairman.

The issue: Would Geithner be a good-faith participant with other regulators?

The answer was Geithner would, Wolin said. Moreover, he will head the council of regulators when it meets for the first time Friday. This seemed important to Sen. Christopher Dodd, D-Conn., who noted that the infighting and lack of communication between agencies was partly responsible for the regulatory breakdown that failed to forecast and address the financial crisis.

“There has to be a change in how we operate,” Dodd told the panel.

Committee officials and Treasury Department officials told MarketWatch that Geithner wasn’t invited, while Wolin was. They also said all of the agencies have been cooperating.

Obama to Tap Warren to Help Set Up Consumer Agency

President Obama named Elizabeth Warren as an advisor to help create his consumer financial protection bureau. The agency will be in charge of regulating Wall Street and enforcing new, strict financial protection law. Bloomberg.com posted a great article explaining the new bureau, check out a portion of their story below or read the full text here.

Warren will be an assistant to the president and a special adviser to Treasury Secretary Timothy F. Geithner, the statement said. The White House expects her to start immediately setting up the agency, which was established by this year’s Wall Street financial regulatory overhaul, said an administration official who spoke on condition of anonymity.

“The Consumer Financial Protection Bureau will be a watchdog for the American consumer, charged with enforcing the toughest financial protections in history,” Obama will say at a 1:30 p.m. Washington time event in the Rose Garden announcing Warren’s position, according to prepared remarks released by the White House.

Warren will play a role in determining who will be the first director of the bureau when it becomes an independent agency housed at the Federal Reserve, a decision that isn’t expected for several months, perhaps not until 2011, the official said.

‘Same Vision’

“The president and I are committed to the same vision” for the consumer bureau, Warren’s statement said. “I am confident that I will have the tools I need to get the job done.”

Obama Seeks New Design For Housing, Fannie/Freddie

From Reuters.com:

The Obama administration called for "fundamental change" at Fannie Mae and Freddie Mac, but a long, politically explosive debate lies ahead on the future of the bailed-out mortgage giants and housing policy that affects millions of Americans and billions in investment.

U.S. Treasury Secretary Timothy Geithner on Tuesday raised basic questions about the government's long-standing role in subsidizing the $10.7 trillion housing market and supporting the historic "American dream" of home ownership.

Critically for both homebuyers and investors, he backed some form of government guarantee for mortgages. Geithner said a key question was whether the private sector could provide insurance or guarantees as part of a new home financing regime with enough safeguards to avoid another mortgage meltdown.

"It is not tenable to leave in place the system we have today," Geithner said.

"The challenge is to make sure than any government guarantee is priced to cover the risk of losses, and structured, to minimize taxpayer exposure," he told housing industry leaders at a conference convened by the Treasury almost two years after the government seized Fannie Mae and Freddie Mac to save them from collapse.

Congress Presses IRS to Ease Tax Preparer Regulations

Thirty-one members of the House of Representatives have reportedly signed a letter urging Treasury Secretary Geithner to ease up on tax preparer regulations. The members of Congress, including nine members of the tax-writing House Ways and Means Committee, are hoping to exempt non-signing tax preparers at CPA firms from registration requirements. They have also requested a delay in the IRS’ plans to launch a nationwide examination of tax preparers.

Web CPA reports:

The group, led by Brad Sherman, D-Calif., and Michael Conaway, R- Texas, said the IRS should modify its proposal. “We believe that the IRS has neither demonstrated the need for extending the non-signing preparer requirements to CPA firms nor that its proposed testing program merits shifting IRS resources away from other mission-critical programs,” they wrote. “We believe that any testing program should be deferred until the IRS has performed an adequate study to determine the level of return preparation problems caused by a lack of preparer competence and whether testing would have a meaningful effect on reducing those problems.”

The letter argues that requiring IRS registration of non-signing preparers who work for CPA firms is unnecessary because state boards of accountancy already regulate CPA firms and individual CPAs, and because the IRS would be able to monitor the quality of the CPA firms’ work through the preparer tax identification numbers of the CPAs who sign the tax returns.

The PTIN numbers will be assigned by the IRS when the CPAs register and will have to be included on all the tax returns they sign. The IRS has already excluded CPAs from the proposal’s examination and continuing professional education requirements because they are regulated by the state accountancy boards and Treasury Circular 230, the rules governing practice before the IRS, so there is “strong justification for not expanding the PTIN requirement beyond signing preparers in CPA firms with no adverse effect to the public.”

Read more here

Geithner Says A.I.G. Rescue Prevented a Depression

Treasury Secretary Timothy Geithner spent several hours being questioned this morning, on the government’s actions during and after the bail out of American International Group (AIG). Geithner said that the decision prevented another great depression and – despite what it looked like – was made to protect the American people.

According to a New York Times story, the committee did not seem impressed with his answers and spent a decent amount of time questioning the Treasury Secretary. You can read a segment of the piece below.

Mr. Geithner said he was not involved in the decision to withhold information about deals that sent billions of taxpayer dollars from the bailout of A.I.G., the insurance giant, to big banks.

“I withdrew from monetary policy decisions,” Mr. Geithner said, “and day-to-day management of the New York Fed.”

The committee called Mr. Geithner, former Treasury Secretary Henry M. Paulson Jr. and other officials to explain, once again, the confounding results of an $85 billion rescue loan made to A.I.G. in September 2008. The loan sheltered big banks from any losses, but saddled A.I.G. with a debt so crushing that the Treasury soon had to step in and provide even more rescue money. Mr. Geithner was the president of the Federal Reserve Bank of New York in September 2008, when the first rescue loan to A.I.G. was extended.

After Mr. Geithner’s statement, the questions focused almost immediately on trying to determine why those negotiating on behalf of the taxpayers did not push the banks to make concessions, like returning the collateral to A.I.G. or accepting less than full value for their contracts with the insurer.

TARP Bailout Extended 10 Months

This morning, Treasury Secretary Timothy Geithner announced that he would be extending the Troubled Asset Relief Program – or TARP – by 10 months. Geithner went on to say that the new, scaled back program would be focused on getting loans to small businesses, stopping foreclosures, and stimulating loans from the credit market. The extended TARP is estimated to cost no over $500 billion.

"History suggests that exiting prematurely from policies designed to contain a financial crisis can significantly prolong an economic downturn," Geithner wrote in a letter to congressional leaders. "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 the Congress have worked so hard to achieve."

Under the TARP law, the bailout program would have expired at the end of December if Geithner had not decided to extend it.

Geithner said that in the end he does not expect to spend more than $550 billion and that $175 billion will be repaid by the end of 2010.

His letter also includes a current accounting of TARP: The government expects to lose $42 billion of the $364 billion it disbursed in the 2009 fiscal year, which ended on Sept. 30.

While most observers had expected Geithner to extend the bailout, Republicans have been calling for it to be shut down and have filed legislation to end it.

Continue reading at CNN.com…

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Geithner: 'The Credit Crunch is Not Over'

At a small business finance forum in Washington, Timothy Geithner reminded small businesses that the credit crunch is not over yet and warned listeners not to get too far ahead of themselves. He went on to explain that while many big businesses are already seeing profits, small business owners still have more recovering to do. Checkout the following CNNMoney.com article on the event below.

One day after Goldman Sachs' CEO apologized for his bank's role in the financial meltdown, Treasury Secretary Geithner called on the nation's financiers to step up and do more to fix the damage they helped cause.

"This credit crunch is not over," Geithner at a small business financing forum in Washington hosted by the Treasury. "It may feel dramatically better for large companies, but it is not over for small businesses across the country."

The nation's banking system was stabilized with taxpayer dollars, and Geithner said he holds the biggest banks accountable for passing the torch from Wall Street to Main Street.

"Banks bear some responsibility for the extent of the damage caused by the crisis," he said. "And they carry a substantial obligation to help our communities get back on their feet."

Geithner and an assortment of top Washington officials, including Small Business Administrator Karen Mills, met Wednesday with a gathering of bankers and small business owners to address the credit crunch that has plagued small business owners for more than a year. Frozen out by banks unwilling to make risky lending bets on startups and small companies, the nation's 6 million small employers are struggling.

Continue reading at CNN Money.com…

U.S. Needs to Borrow Less than Expected: Geithner

From MarketWatch.com:

The U.S. government's borrowing needs will likely be much less than originally expected, as bank have been repaying funds received during the crisis, Treasury Secretary Timothy Geithner told news channel CNBC.

"We are likely to have to borrow substantially less than we initially anticipated to help repair the damage to our financial system," Geithner said during an interview in Singapore, where he attended a meeting of finance ministers from Asia-Pacific countries.

Geithner also repeated his stance that a strong dollar is in the U.S. interest.

The dollar rose on Thursday, after slumping to 15-month lows earlier this week on expectations that the Federal Reserve will not raise interest rates any time soon.

Geithner's comments came as finance ministers from the Asia-Pacific Economic Cooperation also told Geithner that the region needs a strong dollar, Dow Jones reported, citing a Russian official.

Fed Rejects Geithner Request for Study of Governance, Structure

From Bloomberg.com:

The Federal Reserve Board has rejected a request by U.S. Treasury Secretary Timothy Geithner for a public review of the central bank’s structure and governance, three people familiar with the matter said.

The Obama administration proposed on June 17 a financial- regulatory overhaul including a “comprehensive review” of the Fed’s “ability to accomplish its existing and proposed functions” and the role of its regional banks. The Fed was to lead the study and enlist the Treasury and “a wide range of external experts.”

Some top central bank officials, after agreeing to the review, saw a potential threat to Fed independence after the Treasury released the proposal, two of the people said. The Obama plan said the Treasury would consider recommendations from the review and “propose any changes to the Fed’s governance and structure.”

“It is not obvious at all why that is a Treasury responsibility or even appropriate why the Treasury would undertake that kind of study,” said Robert Eisenbeis, chief monetary economist at Cumberland Advisors Inc. in Vineland, New Jersey, and a former Atlanta Fed research director. “The Fed was created by Congress and it is not part of the executive branch.”

Geithner Asks Congress to Increase Federal Debt Limit

From the Wall Street Journal:

U.S. Treasury Secretary Timothy Geithner asked Congress to increase the $12.1 trillion debt limit on Friday, saying it is "critically important" that they act in the next two months.

Mr. Geithner, in a letter to U.S. lawmakers, said that the Treasury projects that the current debt limit could be reached as early mid-October. Increasing the limit is important to instilling confidence in global investors, Mr. Geithner said.

The Treasury didn't request a specific increase in the letter.

"It is critically important that Congress act before the limit is reached so that citizens and investors here and around the world can remain confident that the United States will always meet its obligations," Mr. Geithner said in a letter to lawmakers.

Mr. Geithner said that it is "clearly a moment in our history" that requires support from both Democrats and Republicans for the increase.

"Congress has never failed to raise the debt limit when necessary," Mr. Geithner said.

The non-partisan Congressional Budget Office said Thursday the federal government's budget deficit reached $1.3 trillion through the first ten months of fiscal 2009, on track to reach a record high of $1.8 trillion for the 12-month period.

Geithner Vows to Cut U.S. Deficit on Rating Concern

From Bloomberg.com:

Treasury Secretary Timothy Geithner committed to cutting the budget deficit as concerns about deteriorating U.S. creditworthiness deepened, and ascribed a sell-off in Treasuries to prospects for an economic recovery.

“It’s very important that this Congress and this president put in place policies that will bring those deficits down to a sustainable level over the medium term,” Geithner said in an interview with Bloomberg Television yesterday. He added that the target is reducing the gap to about 3 percent of gross domestic product, from a projected 12.9 percent this year.

The dollar extended declines today after Treasuries and American stocks slumped on concern the U.S. government’s debt rating may at some point be lowered. Bill Gross, the co-chief investment officer of Pacific Investment Management Co., said the U.S. “eventually” will lose its AAA grade.

Geithner, 47, also said that the rise in yields on Treasury securities this year “is a sign that things are improving” and that “there is a little less acute concern about the depth of the recession.”

The benchmark 10-year Treasury yield jumped 17 basis points to 3.36 percent yesterday and was unchanged as of 12:18 p.m. in London. The Standard & Poor’s 500 Stock Index fell 1.7 percent to 888.33 yesterday. The dollar tumbled 0.5 percent today to $1.3957 per euro after a 0.8 percent drop yesterday.

Gross’s Warning

Gross said in an interview yesterday on Bloomberg Television that while a U.S. sovereign rating cut is “certainly nothing that’s going to happen overnight,” markets are “beginning to anticipate the possibility.” Nobel Prize-winning economist Paul Krugman, speaking in Hong Kong today, nevertheless argues it’s “hard to believe” the U.S. would ever default.

Britain’s AAA rating was endangered when Standard & Poor’s yesterday lowered its outlook on the nation’s grade to “negative” from “stable,” citing a debt level approaching 100 percent of U.K. GDP.

It’s “critically important” to bring down the American deficit, Geithner said.

In its latest budget request, the administration said it expects the deficit to drop to 8.5 percent of GDP next year, then to 6 percent in 2011. Ultimately, it forecasts deficits that fluctuate between 2.7 percent and 3.4 percent between 2012 and 2019.

Ten-year Treasury yields have climbed about 1 percentage point so far this year, in part after U.S. economic figures indicated that the worst of the deepest recession in half a century has passed. The yield on 30-year bonds has jumped to 4.31 percent, from 2.68 percent at the beginning of the year.

The Treasury chief said it’s still “possible” that the unemployment rate may reach 10 percent or higher, cautioning that the economic recovery is still in the “early stages.”

“The important thing to recognize is that growth will stabilize and start to increase first before unemployment peaks and starts to come down,” he said. While “these early signs of stability are very important” this is “still a very challenging period for businesses and families across the United States,” he said.

Initial claims for unemployment insurance fell by 12,000 in the week ended May 16 to 631,000, according to Labor Department statistics released yesterday. Still, the number of workers collecting unemployment checks rose to a record of more than 6.6 million in the week ended May 9.

As of April, the unemployment rate was 8.9 percent, the highest level since 1983. The economy has lost 5.7 million jobs since the recession started in December 2007.

Treasury Pick Misfiled Using Off-the-Shelf Tax Software

From WashingtonPost.com:

Millions of Americans might be surprised to learn that the man nominated to be the next Treasury secretary -- New York Fed President Timothy F. Geithner -- did his taxes using the same software they do: TurboTax, a fact revealed in his Senate confirmation hearing yesterday.

Geithner's tax returns from 2001 through 2004 have become an embarrassment, if not a stumbling block to his confirmation. A 2006 IRS audit informed Geithner that he had failed to pay self-employment taxes in '03 and '04, when he directed the International Monetary Fund's policy development and review department. While being vetted for Treasury secretary late last year, he was told he made the same errors on his '01 and '02 returns. He calls them "careless mistakes" that he should have caught and has paid $42,702 in back taxes.

It's an unlikely image: The man charged with leading this nation out of recession -- an architect of the $700 billion financial rescue package -- hunched over a computer, surrounded by stacks of paper, trying to figure out his taxes, just like the 18 million other working stiffs who bought TurboTax last year.

But the disclosures raise another issue: When Geithner found he owed back taxes for '03 and '04, and had probably made the same mistakes on his '01 and '02 returns, why did he wait until confronted by Obama's vetters to check?

That was the question Sen. Jon Kyl (R-Ariz.) tried to get at yesterday, suggesting that Geithner was hoping to ride out the statute of limitations on audits.

"The question is whether it occurred to you before you were nominated or approached to be nominated that, in point of fact, you didn't have to go beyond 2003 and '04 because of the statute of limitations," Kyl said.

Geithner said: "I did not believe I had the obligation to go back. I had no occasion to think about it, and I might not have thought about it had I not gone through the vetting process."

Video of Geithner Discussing Tax Problems

Embedded below is a video of Timothy Geithner being grilled by the Senate on his tax problems.

Obama's Treasury Secretary Owed $26K in Taxes, but it's OK

From LATimes.com:

Uh, it seems that Democrat Barack Obama's secretary of the Treasury-designate owed something like $34,000 in back taxes when he was picked to head the nation's financial system.

Uh, it seems Timothy Geithner owed the back taxes because the would-be member of the president's new Cabinet employed a housekeeper who became an illegal immigrant while working for him. And Geithner did not pay self-employment taxes for several years until the IRS audited him.

It seems the Obama transition team discovered the back taxes while researching the nominee, unlike the federal grand jury investigation of now former would-be secretary of Commerce-designate Bill Richardson.

It seems that such legal problems have derailed would-be Cabinet members in the past -- think Zoe Baird and Kimba Wood for Bill Clinton and Linda Chavez for George W. Bush.

It seems that Obama spokesmen are calling the nonpayment of thousands of dollars in back taxes for years a minor thing. One news report described it as "a speed bump." Sam Stein over at HuffingtonPost calls it an "embarrassing public relations headache" but really a mistake "quite common in nature."

For a secretary of the Treasury? A Federal Reserve president? Somebody who, now that Bill Richardson is stuck in Santa Fe, is gonna mastermind the economic recovery?

Oh, and for someone whose department includes the Internal Revenue Service?

It seems that the Obama team's talking points focus on the words "honest mistakes."

Incoming White House press secretary Robert Gibbs says of Geithner, "He's dedicated his career to our country and served with honor, intelligence and distinction. That service should not be tarnished by honest mistakes, which, upon learning of them, he quickly addressed."

…

So you're a bank president walking out of the store with a $34,000 candy bar you did not pay for. A large person with a gun points that out. So you pay the $34 Gs. And that makes it obviously unintentional and an "honest mistake"?