WASHINGTON (AP) - America's banks are still broken despite all
their bailout billions, Treasury Secretary Timothy Geithner told
impatient rescue overseers Tuesday as they pressed him on when
things will get better and how much it will cost. A bleak new
report estimated U.S. banks and other financial institutions could
lose a stunning $2.7 trillion in all.
How well is the mostly-spent $700 billion federal bailout
working? "To date, frankly, the evidence is mixed," Geithner told
a congressionally appointed oversight panel.
Confidence in the program is wearing thin on Capitol Hill. With
lawmakers back from their spring break, even bailout supporters are
skeptical that Congress - weary of bankers' bonuses and
still-scarce credit - would approve additional bank rescue money if
Geithner's testimony signaled that the administration was not
preparing to ask.
Wall Street was cheered by Geithner's assessment that "the vast
majority" of banks could be considered well-capitalized. Bank
stocks had slid on Monday but bounced back on Tuesday.
Still, the government's effort to stabilize the financial sector
and unclog credit markets has come under heavy scrutiny. Officials
must do a better job in carrying out and explaining its efforts to
shore up the financial system, the head of the oversight panel told
"The sense of fear and uncertainty has not gone away, but it's
been joined by a new sense of anger and frustration," said
Elizabeth Warren, who is also a Harvard University law professor.
"People are angry that, even if they have consistently paid their
bills on time and never missed a payment, their TARP-assisted banks
are unilaterally raising their interest rates or slashing their
Of the $700 billion authorized by Congress for the Troubled
Asset Relief Program last October, Geithner said about $110 billion
is left. With about $25 billion expected to be repaid this year,
the total available is about $135 billion.
Some banks are maneuvering to pay back some of the bailout
money, unhappy with the strings attached. But Geithner said that
doesn't mean the government would necessarily accept the
These questions have to be first answered, he said: "Do the
institutions themselves have enough capital to be able to lend and
does the system as a whole, is it working for the American people
for recovery?" A series of "stress tests" are being administered
to banks by the administration to help judge their financial
The treasury secretary said that while most banks have more than
enough capital to satisfy federal regulators, a combination of
factors - including worries about the broader economy and the
crushing weight on their balance sheets of bad loans and other
toxic securities - was feeding "uncertainty about the health of
That, in turn, "has sharply reduced lending across the
financial system" and was holding back economic recovery, Geithner
Geithner testified on a day that saw a spate of reports
suggesting the economic downturn is far from over and is growing
ever more expensive:
- The International Monetary Fund said U.S. financial
institutions could suffer $2.7 trillion in losses from the global
credit crisis through 2010, nearly double the IMF projection just
six months ago, and that the global total could surpass $4
trillion. The IMF said governments have made progress getting extra
money into the banking system, but must do more.
- General Motors Corp. could get as much as $5 billion more in
federal loans, while Chrysler LLC could get $500 million as they
race against government deadlines to restructure, according to the
report of a special government inspector general. Chrysler has
until April 30 while GM has until June 1. GM already has received
$13.4 billion in government loans; Chrysler $4 billion.
- An inspector general assigned to the bailout program concluded
that a private-public partnership designed to buy up bad assets is
tilted in favor of private investors and creates "potential
unfairness to the taxpayer."
- The top 10 recipients of the $700 billion bailout spent about
$9.5 million on federal lobbying during the first three months of
2009, a government report showed. The biggest spender was GM,
devoting $2.8 million to lobbying in the first three months of
2009. Failed insurance giant American International Group Inc. and
banks Citigroup Inc. and JPMorgan Chase & Co. each reported
spending more than $1 million to influence the government.
Geithner was asked by panel member Rep. Jeb Hensarling of Texas,
one of two Republicans on the five-member panel, "What is the exit
strategy from AIG?"
The treasury secretary could not provide an answer, saying
"very difficult judgments" were involved and that the government
still lacked the express authority to fully manage the company,
even though roughly $180 billion in taxpayer support has been
pledged to the giant insurer, and the government effectively owns
80 percent of the company stock.
Geithner noted Obama administration efforts to gain legislative
authority to more closely regulate sprawling financial institutions
like AIG that are not banks.
Former Republican Sen. John Sununu of New Hampshire told
Geithner that uncertainty over the bank stress tests and the
prospect that the government might take a more active shareholder
role in bailed-out banks was leaving "more questions unanswered
Geithner insisted steps taken by the administration were helping
to cushion the economic pain from what he called a continuing
"very severe financial crisis, the worst in generations."
Despite government help to banks, "the cost of credit is still
very high. Reports on bank lending show significant declines in
lending for consumer loans, for commercial and industrial loans,
although mortgage refinancings have picked up considerably," he
Meanwhile, Nobel Prize-winning economist Joseph Stiglitz said
stricter rules on the use of bailout money is needed as well as a
signal that there is no more money in the pipeline.
"I think it is imperative that Congress narrow the breadth of
this new corporate welfare state," he told the Joint Economic
Committee at a separate hearing. "It is people that we should be
protecting, not corporations."
Sen. Chuck Schumer, D-N.Y., said giving banks more money is
"out of the question" right now. In an interview with The
Associated Press, Schumer said he supports converting future TARP
loans for banks into government-owned shares in the companies. He
acknowledged that such an approach is less than ideal. "There's
legitimate worry that political, instead of economic decisions are
made," Schumer said.