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Financial rescue cheap vs past crises

17 December 2010 12:20 (UTC +04:00)

Baku - APA-Economics. The price of corporate bailouts in 2008 and 2009 looks cheap compared to past crises, U.S. Treasury Secretary Timothy Geithner said on Thursday, while urging more drastic action from housing finance giants Fannie Mae and Freddie Mac to help homeowners, Reuters reported.

For the first time, Geithner said Fannie Mae and Freddie Mac should take part in Obama administration programs to write down principal on loans for those who owe more than their homes are worth, often referred to as underwater mortgages.

Vowing that work on housing "is not done," Geithner told a congressional panel that the Treasury would likely lose money on its housing support programs, but probably faces a final net cost of less than $25 billion on the $700 billion Troubled Asset Relief Program (TARP) portion of the bailout.

Geithner told the bailout overseers that Treasury expects to earn a profit on its remaining support under TARP for banks, automakers, credit markets and American International Group.

He said the overall direct cost of all of the government’s financial rescue efforts, including more than $150 billion to cover Fannie and Freddie losses, will be less than 1 percent of U.S. gross domestic product, Geithner said.

"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," he told the Congressional Oversight Panel that has overseen the TARP since it was launched at the peak of the crisis by the Bush administration in 2008.

Geithner conceded the U.S. economy remains scarred by the crisis, with unemployment near 10 percent, while regulators across Washington moved to implement a range of post-crisis regulatory reforms approved in July.

Asked about a new Congressional Budget Office estimate that TARP’s net cost will be as low as $25 billion, Geithner said: "I suspect that number will be too high".

The estimated cost of TARP -- just one part of crisis supports that totaled trillions of dollars -- has fallen sharply.

The CBO initially expected the government to take a $350 billion hit on TARP. Treasury’s most recent estimate was for about $30 billion, after all investments in AIG are sold.

The less-than 1 percent estimate for all government support compares to about 2.4 percent of GDP spent to deal with the savings and loan crisis of the 1980s and 90s, according to the Government Accountability Office.

Geithner’s testimony came a day after the Treasury collected another $2.1 billion from its $49.5 billion bailout investment in General Motors Co and is preparing to begin selling shares in AIG next year.

The Treasury secretary appeared before the TARP oversight panel during a busy week for regulators moving to implement the Dodd-Frank law approved in July with the goal of curbing Wall Street risk-taking and protecting consumers.

The top U.S. futures regulator on Thursday moved to prevent speculators from distorting markets in oil and other physical commodities.