–Expect TARP To Be Less Than $100 Billion

By Brai Odion-Esene

WASHINGTON (MNI) – U.S. Treasury Secretary Timothy Geithner Tuesday
said the Obama administration has decided to approach the reform of
Fannie Mae and Freddie Mac in two stages.

Following questions on why an overhaul of the housing system is not
part of the financial reform package, Geithner told the Senate Finance
Committee the government has held off “because we thought frankly we’d
get a better outcome, more thoughtful effort, more committment to reform
if we were further ahead in the process of repairing the damage to the
housing markets.”

The administration has begun to consider its options, soliciting
public comment on the various proposals, he added, reiterating the
government’s readiness to work with Congress to put in place a strong
set of reforms to address the whole housing finance market.

“There are a range of things we are going to have to change in that
process,” the Treasury Secretary said.

The purpose of the hearing was to discuss the Crisis Responsibility
Fee that the administration is proposing to recoup the direct costs of
the Troubled Asset Relief Program from large banks.

Geithner argued that TARP recipients Fannie and Freddie are not
included in the levy because “they did not cause the crisis.”

Their challenges where made worse by the crisis, he said, and it
would not be appropriate to oblige them to be covered by the fee.

Also, the fact both mortgage giants have been effectively
nationalized by the government means having them pay a bank fee “would
be one hand of government paying another.”

The losses from the government programs to bailout the financial
sector will be “very small,” Geithner said, adding the programs
implemented by the Federal Reserve will generate billions of dollars for
taxpayers over the next five years.

With the U.S. Treasury already receiving more than $200 billion
back from financial institutions, “We have substantial repayments still
ahead of us … substantial warrants, proceeds still ahead of us,”
Geithner said.

This means that instead of the expected $500 billion in losses from
the rescue of the banking system, it is now expected to be less than
$100 billion, he said.

Geithner also argued in favor of the bank fee over proposals put
forward by some on the Hill that bank profits be taxed instead. It is
more likely, he told the panel, that other nations will be more willing
to introduce a crisis fee than a tax on profits.

Although the Fed’s efforts to support the financial sector could
ultimately see the taxpayer make a profit, one lawmaker asked Geithner
if the public should know exactly what kind of risks the Fed has on its
balance sheets.

“I completely agree,” Geithner responded, noting Fed Chairman Ben
Bernanke has been supportive of changes that provide information
regarding the risks that exist on the central bank’s balance sheet.

The American people should have “full disclosure and transparency”
about the Fed’s committments still outstanding and the risk in those
committments.

Geithner was also asked to comment on the concerns aired by bank
regulators concerning the proposal by Senate Agriculture Committee
Chairman Blanche Lincoln that would require banks to spin-off their
swaps trading desks or lose access to the FDIC guarantee.

Both Senate Banking Chairman Chris Dodd and Sen. Lincoln are
working on provisions, he said, and considering how to deal with the
concerns raised by regulators and lawmakers.

“I know they are working carefully on how best to accommodate those
concerns.” But, he said: “We have not taken a position on that specific
provision now.”

** Market News International Washington Bureau: 202-371-2121 **

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