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Washington: The Obama administration will shutter programmes at the heart of a $700 billion financial bailout but remains focused on supporting a fledgling economic recovery, treasury secretary Timothy Geithner said on Tuesday.
“We are now at the point where we can begin to wind down the programmes that really defined Tarp in its initial stages,” Geithner told Reuters in an interview, referring to the Troubled Asset Relief Programme.
Instead, the administration will focus on “more-targeted programmes directed at what are the principal areas where there’s still weakness in access to credit,” he said, specifically citing housing and small businesses.
While some programmes would wind down, Geithner said the administration has not yet made a formal decision on whether to extend the life of the overall bailout programme passed its scheduled expiry at the end of this year.
Meanwhile, the US government's $700 billion financial bailout programme has increased moral hazard in the markets by infusing capital into banks that caused the financial crisis, a watchdog for the programme said on Wednesday. The special inspector general for the US Treasury's Troubled Asset Relief Programme said the plan put in place a year ago was clearly influencing market behavior, and he repeated that taxpayers may never recoup all their money.
A Treasury official said three programmes will be shut down by year-end: the Capital Purchase Programme that was used to pump funds into banks, a rejigged version called the Capital Assistance Programme that was never tapped and the Targeted Investment Programme that supplied $40 billion of additional capital to prop up Citigroup and Bank of America. The official also said the total of bailout funds dedicated to a Federal Reserve securities loan programme and to a public-private investment programme for so-called toxic assets would be capped at $30 billion each.
Congress approved the financial rescue fund a year ago as the financial crisis was raging to allow Treasury to buy up troubled assets clogging bank balance sheets, but then-treasury secretary Henry Paulson quickly decided pumping money into banks was more critical. Paulson called leaders from the nine largest US banks to the Treasury and forced them to accept taxpayers funds, fearing that if only the weakest banks were given support they might be tainted in the public’s eye.
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