WASHINGTON -- Treasury Secretary Timothy Geithner testified Thursday that the financial system has "stepped back from the brink," allowing the government to wind down some programs designed to calm jittery markets.
Policymakers must change strategy as they switch from "rescuing the economy to repairing and rebuilding the financial system," Geithner told the Congressional Oversight Panel overseeing federal bailout funds. He said that Treasury will:
•Not need to tap a $750 billion contingency fund budgeted earlier this year on top of last year's $700 billion bailout fund.
•End a program this month to guarantee money market mutual funds, a program that once covered more than $3 trillion in fund assets.
•Scale back to no more than $30 billion from $100 billion the amount that Treasury will ante up as part of a public-private program to buy toxic loans and investments from financial institutions.
Geithner warned that the economy remains weak: At 9.7% last month, "unemployment is unacceptably high," he said, and the mortgage market is still "significantly impaired" outside lending covered by government-owned Fannie Mae and Freddie Mac. Some businesses face tight credit. And millions of ordinary people are losing their homes.
He vowed that the government wouldn't make the mistake of declaring premature victory and putting "the brakes on too early."
But Geithner defended the government's record in restoring stability to financial markets panicked a year ago after the collapse of Lehman Bros. The rescue had raised confidence enough to cut the cost of credit. "Because of near historically low interest rates," Geithner said, "a family with an average 30-year mortgage is saving around $1,200 each year."
He said banks have repaid more than $70 billion in bailout funds and will likely pay off another $50 billion in the next 18 months. Since he became Treasury secretary in January, the government's outstanding financial commitments to banks have fallen to $180 billion from $239 billion, he said.
Geithner said taxpayers have earned $12 billion in dividends on the bailout funds and from selling back warrants that could have given the government equity stakes in the banks. He said Treasury has earned a 17% average annual return from the 23 banks that have paid back their bailout money.