As ABC News first reported Tuesday evening, the Obama administration today announced it is extending the controversial Troubled Asset Relief Program, or TARP, until October 2010, to free up credit for small businesses to expand and for homeowners to secure their mortgages through the Obama administration housing program.
TARP became law in October 2008 and was set to expire Dec. 31, 2009.
The secretary of the Treasury has the power to extend the program if he sees fit, though he has to notify Congress. On Wednesday morning Tim Geithner did just that.
In a letter to House Speaker Nancy Pelosi, Geithner said the extension to Oct. 3, 2010 was "necessary to assist American families and stabilize financial markets because it will, among other things, enable us to continue to implement programs that address housing markets and the needs of small businesses and to maintain the capacity to respond to unforeseen threats."
The Treasury chief also stated that the administration may increase its commitment to a program -- known as the Term Asset-Backed Securities Loan Facility (TALF) -- aimed at boosting lending to small businesses and consumers.
"The recovery of our financial system remains incomplete," Geithner warned. "And near-term shocks to that system could undermine the economic recovery we have seen to date."
"While we are extending the $700 billion program, we do not expect to deploy more than $550 billion," he noted. "We also expect up to $175 billion in repayments by the end of next year and substantial additional repayments thereafter. The combination of the reduced scale of TARP commitments and substantial repayments should allow us to commit significant resources to pay down the federal debt over time and slow its growth rate."
The nation's budget deficit soared to a record $1.4 trillion in fiscal year 2009 due to the government's efforts to save the financial system and rescue the country from recession.
But the ultimate cost of the program is now expected to be no more than $140 billion.
President Obama said Tuesday that "because of our stewardship" of TARP, "and the transparency and accountability we put in place, TARP is expected to cost the taxpayer at least $200 billion less than what was anticipated just this summer." He said "this gives us a chance to pay down the deficit faster than we thought possible and to shift funds that would have gone to help the banks on Wall Street to help create jobs on Main Street."
The president said on Monday while the administration needs to hew to the purpose of TARP in any new disbursements, small- and medium-sized businesses "cannot get the loans they need to make capital adjustments that would allow them to expand employment. and so that's a particular area where we might be able to make a difference."
But several Republicans on Capitol Hill have challenged this idea and are objecting to the Obama administration move to extend TARP.
"What was supposed to be an emergency capital injection to thaw frozen credit markets has morphed into a revolving bailout fund to advance the Democrat's political, social and economic agenda," Rep. Jeb Hensarling, R-Texas, said in a statement today. "This announcement was one of the worst-kept secrets in Washington. Extending TARP will provide the 'bailout bridge' necessary for the implementation of the permanent $200 billion bailout fund that Democrats will force through the House this week as part of their financial regulatory expansion bill."
Rep. Mike Pence, R-Ind., expressed similar outrage, telling ABC News Tuesday, "For this president or this Democratic Congress to proposing using TARP funds for anything other than deficit reduction is simply a violation of the law."
National Economic Council director Lawrence Summers told ABC News Tuesday afternoon that "that's a real misunderstanding of TARP legislation. The TARP legislation statement and intentions that the administration set up provided explicitly for support for small business lending under TARP."