Back on Capitol Hill Thursday for his second hearing in two days, Treasury Secretary Tim Geithner continued to defend his department's plan to take taxpayer money repaid to the government by bailed-out banks and then use it to help struggling community banks.
On Wednesday, Senate Banking Committee Republicans like Jim DeMint, R-S.C., had expressed concerns that Geithner might use the $700 billion Troubled Asset Relief Program "permanently." The ranking Republican on the House Appropriations Subcommittee on Financial Services echoed those worries on Thursday.
"Is the TARP going to go on forever?" asked Rep. Jo Ann Emerson, R-Mo., wondering if the recycling of TARP funds could eventually lead to the nationalization of banks.
"I believe the secretary of the Treasury has the ability under the law to extend it beyond its initial expiration for an additional nine months, but I don't have the authority to extend it beyond that," Geithner replied. "It is not a permanent program. So we could not permanently recycle these programs and it is not our objective and I would never support a program designed to, as you question, a program designed to allow us to nationalize banks or other business, as a matter of policy, would never support that."
The Treasury chief stated Wednesday that they read the TARP law to mean that "a dollar that comes back to us goes in the general fund, but that does create additional room to make another dollar of commitments."
However, Sen. David Vitter, R-La., argued that the real reason for re-using the funds is that the administration does not want to come back to Congress to ask for more money.
While Geithner reiterated Thursday that Treasury would recycle TARP money to help community banks, he said these funds could not be used to help cities and states struggling to overcome budget problems.
"We do not believe that TARP as currently designed and legislated provides a viable solution to this specific challenge," he stated.
Who Will Ultimately Carry the Burden?
"We are restricted to giving assistance to financial institutions," he noted. "The way TARP is designed, every dollar we guarantee is charged against the limited funds Congress authorized. And for those reasons and others, it does not appear to us to provide a viable way of responding to that challenge, and I think that's one reason why your colleagues in the House are considering legislation to address that problem."
Instead, said the Treasury chief, it will be up to the mayors and governors of struggling cities and states to "carry the primary burden."
Subcommittee lawmakers also voiced fears on Thursday that government bailout money might be used to help ailing automakers like General Motors ship jobs abroad. GM is currently in restructuring talks with the Treasury and the United Auto Workers union, which has complained about the possibility of GM slashing domestic car production and boosting imports from countries like China and Mexico.
Roared Rep. David Obey, D-Wisc., "I'm not interested in providing one damn dime to any company, like General Motors, who decides that as part of their reorientation operation they're going to be closing plants in this country and moving them to Mexico or any other foreign country."
Obey also told Geithner that he would not support the administration's request for $108 billion in funding for the International Monetary Fund, complaining that European countries like Germany had not implemented large enough stimulus packages to warrant using more American funds to end the global recession.
"We don't want Uncle Sam to be Uncle Sucker," said the chair of the full House Appropriations Committee.
With the U.S. currency currently struggling near its lowest level of the year, Geithner noted that maintaining a strong dollar was one of his top priorities.
"As the secretary of the Treasury, I want you to know that my basic obligation is to make sure that we put in place policies that sustain confidence in this economy, in our currency, that we sustain a strong dollar, we retain what is a great strength and asset for this country, which is the most deep and most liquid markets for Treasury securities in the world," he told lawmakers.
Weight the Costs of a Watchdog Agency
One possible future measure that the administration is now mulling over is the creation of an independent watchdog agency to protect consumers, Geithner acknowledged.
"We are examining the merits of setting up a new independent commission or agency to help provide stronger rules to protect consumers and better enforcement of those rules," he told lawmakers. "We are not at the point yet, though, where we've made a judgment on what precise structure or form this should take, how broad its authority should be, how it relates to the existing authorities that exist across agencies now, but we look forward to the chance to laying out our proposals for you when we're ready."
In the "next couple weeks," Geithner said, the administration will also unveil its selection of the fund managers for its program to rid banks of their bad assets. The department was originally set to announce its picks earlier this month, but postponed the announcement until June.
Also at Thursday's hearing, Geithner told Congress that most of the 5 percent increase in Treasury's budget request for fiscal year 2010 will be used to ratchet up tax collection efforts.