Highlights: Treasury’s Geithner testifies on TARP

WASHINGTON (BestGrowthStock) – The following are highlights from a Congressional Oversight Panel hearing on Thursday with U.S. Treasury Secretary Timothy Geithner testifying on the Troubled Asset Relief program.

GEITHNER ON BANK CAPITAL LEVELS:

“The U.S. banking system has a very substantial (amount) of capital on their books today in the form of common equity against the assets they hold and the risks they’re taking. And I am much more confident today that we made the right judgments on forcing that much capital into the system earlier and that will give us a very reasonable prospect of coming out of this stronger.”

GEITHNER ON PRESSURING FANNIE, FREDDIE:

Asked about news reports the Obama administration is pressuring Fannie Mae and Freddie Mac, through their regulator, FHFA, to write down principal for borrowers who owe more than their home is worth, Geithner pointed to Treasury and HUD programs aimed at helping those “underwater” borrowers.

“Both of those things we think have a lot of benefits. We think there is a pretty good economic case for Fannie and Freddie to participate in those programs, and we are in the process of talking to the (FHFA) about those, about the merits of those programs, about their concerns. I can’t say at this point whether I think they are likely adopt them or not. We are trying to make sure we understand their concerns and they’ve got a different set of objectives, in some ways, different constraints. But I am hopeful that they are going to find a way to participate in many these programs”

GEITHNER ON RISKS FROM FORECLOSURE PAPERWORK PROBLEMS:

Asked whether the mortgage servicing problems could damage institutions and require a “TARP two”, Geithner replied simply: “No.”

He later elaborated on his view on the crisis:

“These are going to present serious challenges to the system, as they have for a long time. We’re not in the first inning of this housing crisis. … It’s going to take some time still for investors, for rating agencies, for creditors to fully evaluate the financial implications of this for individual institutions. The market is finding its way now to be a little more comfortable on how to dimension the potential risk, but that’s going to take a little more time.”

GEITHNER ON EFFECTIVENESS OF FINANCIAL RESCUE STEPS:

On that broad measure of direct financial costs, including the interventions in Fannie and Freddie, the overall costs will be incredibly small in comparison to almost any experience we can look at in the United States or around the world, even in much milder, much less damaging crises. And that’s because of the effectiveness of the overall response.

GEITHNER ON COST OF TARP:

In terms of direct financial cost, TARP will rank as one of the most effective crisis response programs ever implemented. Independent observers, such as the Congressional Budget Office, estimated early on that TARP would cost $350 billion or more. Now, because of the success of the program, TARP is likely to cost a fraction of that amount. CBO today estimates the cost of the program to be as low as $25 billion.

Highlights: Treasury’s Geithner testifies on TARP