With the country's economy improving and the financial system showing signs of repair, the time has come to start winding down government programs put in place to rescue the nation from recession, Treasury Secretary Tim Geithner said Thursday.
"Because of these signs of early progress, we are now in a position to start to adjust our strategy," Geithner told the Congressional Oversight Panel hearing today.
The Treasury chief praised the importance of an array of policy interventions: the stability in the financial system due to the $700 billion bailout, the transparency resulting from the stress tests for the nation's 19 biggest banks, the increased availability of credit thanks to government lending programs, the participation of servicers in the administration's mortgage modification plan, and the effectiveness of the stimulus package.
"As we enter this new phase, we have to begin winding down programs that are no longer necessary and that, by design, are less needed, less important, as the economy recovers," he said.
Accordingly, some Federal Reserve lending programs have already started to be phased down, the FDIC's program to guarantee senior debt has seen a drop in usage, Treasury's money-market guarantee program will be allowed to end later this month, having earned more than $1 billion in income, and a contingency fund of $750 billion put into President Obama's budget will not be used.
In the next 12 to 18 months, Treasury expects $50 billion in TARP repayments from banks, Geithner said. That amount is over 1/3 of the total funds outstanding to banks at this time. For the 23 banks that have fully repaid bailout funds, Treasury has earned an annualized average return of 17 percent, Geithner noted.
However, the panel's chair, Elizabeth Warren, voiced skepticism about the effectiveness of government bailouts.
Since the dark days of last September, "Public fear has turned into anger," she said. "Savings have evaporated, jobs have disappeared, and mortgage foreclosures are now measured in the millions of families and billions of dollars. Taxpayers question what TARP accomplished, when on an individual level, their financial circumstances seem more precarious than ever. They feel like they got stuck with the bill for this bailout, but they didn't get the benefits."
The panel's lone sitting Republican congressman, Rep. Jeb Hensarling of Texas, asked, "The question is what is the taxpayer getting for their money today?"
"I'll say what the taxpayer is getting," Geithner replied. "You have a financial system that's more stable, credit is more available, people can borrow at much lower costs, and taxpayers in the United States can see in the investments we've made in the banking system, return in terms of actual billions of dollars. There is no better measure of the return on these programs."
"How about an additional two-and-a-half million jobs lost?" responded Hensarling. "The highest unemployment rate that we've seen in 25 years? Mortgage delinquencies and foreclosures up? Mr. Secretary, it's a mixed report card at best."
To which Geithner, who delivered his opening statement with a protester holding up a "We need jobs!" sign just behind him, acknowledged, "Unemployment is high and could stay high for some period of time. We are not close to being through this, but on the clearest direct measures of the program we were tasked with executing, we have made more progress than I think people reasonably expected."