Geithner: Banks Have Repaid 75% of Bailout
Last Updated 2:51 p.m. ET
Members of a watchdog panel on Tuesday pressed Treasury Secretary Timothy Geithner on looming losses for banks and foreclosure relief for struggling homeowners, as he assured them that U.S. taxpayers are recovering their investment from the $700 billion financial bailout.
Geithner told the Congressional Oversight Panel at a hearing that banks have repaid about 75 percent of the bailout money they received, and the government's investments in aided banks have brought a return to taxpayers of $21 billion, in income from dividends, sales of warrants and stock, and fees from canceled guarantees.
Prepared Remarks by Secretary Geithner (pdf)
Congressional Oversight Panel Hearing on TARP
Special Report: Wall Street Under Fire
For example, Geithner pointed to the government's sale of approximately 20 percent of its holdings of Citigroup common stock in April and May, totaling $6.2 billion, earning a profit of $1.3 billion.
He acknowledged there likely will be a partial loss from the rescue of giant insurer American International Group Inc., into which the government plowed $182 billion.
Geithner also said the auto industry has made significant structural changes, and the prospects that General Motors and Chrysler will repay the nearly $60 billion in bailout money have improved.
The oversight panel was created by Congress to oversee the Treasury Department's financial bailout program that came in at the height of the financial crisis in the fall of 2008. The panel has been critical of the politically unpopular program, known as the Troubled Asset Relief Program or TARP, which included aid to banks, AIG and the automakers. It is scheduled to expire on Oct. 3, and no new money will be available after that.
The panel's chair, Elizabeth Warren, underlined concerns that regional and small banks could be facing $200 billion to $300 billion in losses in the next few years on commercial real estate loans, and thousands of banks could fail as a result.
"This panel must know whether Treasury has carefully monitored the financial system to measure potential risks," Warren said. She criticized the department for not conducting additional stress tests of the financial system, as was done with the 19 biggest banks.
Panel members also criticized progress of the Obama administration's flagship effort to help people in danger of losing their homes, which is falling flat, according to numbers released Monday. More than a third of the 1.24 million borrowers who have enrolled in the $75 billion mortgage modification program have dropped out. That exceeds the number of people who have managed to have their loan payments reduced to help them keep their homes.
Last month alone, 155,000 borrowers left the program, which is administered by the Treasury Department - bringing the dropout total to 436,000 since the program began in March 2009.
Analysts expect the majority will end up in foreclosure and that could slow the broader economic recovery.
Richard Neiman, an oversight panel member who is New York's top banking regulator, said many families that relied on the government's program to keep their homes "may be left out in the cold." He asked Geithner why thousands of mortgage modifications were canceled.
Geithner said the homeowners involved were unable to prove income and therefore their eligibility for the program. Around 1.2 million people were given temporary modifications without proof of income as a stopgap measure, he said, and they were eventually required to provide the documentation. Many of them were disqualified as a result. The government "erred on the side of speed," he said.
Addressing the role of banks that collect mortgage payments, also known as loan servicers, Geithner said, "Servicers have done a terrible job of making sure they have done everything they can" to help struggling homeowners. Under the program, the services receive a total of up to $75 billion in tax incentives to reduce borrowers' monthly payments.
Geithner said AIG is making progress in restructuring its operations and divest businesses so that taxpayers can recoup their investment. However, he added, the government's investment "will likely still result in some loss."
The Congressional Budget Office has estimated that taxpayers will lose $36 billion. A large part of the money needed to repay the government will come from the sale of assets.
To date, 707 banks have received a total of $205 billion under the TARP program; $142 billion has been repaid. The government has received $17 billion in dividend payments from banks.
Geithner told the panel that TARP and other actions taken by the government, many of which he characterized as unpopular but essential, "have helped stabilize the financial system and restore economic growth."
He admitted that the economy is still going through "an incredibly difficult period," with millions unemployed and suffering from the damage of a deep recession.
"Nevertheless, thanks to the coordinated and forceful actions of Congress, the Obama administration, the Federal Reserve, the FDIC, and other regulatory agencies, the U.S. financial system is much stronger today than it was in early 2009," Geithner said.
© 2010 CBS Interactive Inc. All Rights Reserved. This material may not be published, broadcast, rewritten, or redistributed. The Associated Press contributed to this report. Members of a watchdog panel on Tuesday pressed Treasury Secretary Timothy Geithner on looming losses for banks and foreclosure relief for struggling homeowners, as he assured them that U.S. taxpayers are recovering their investment from the $700 billion financial bailout.
Geithner told the Congressional Oversight Panel at a hearing that banks have repaid about 75 percent of the bailout money they received, and the government's investments in aided banks have brought a return to taxpayers of $21 billion, in income from dividends, sales of warrants and stock, and fees from canceled guarantees.
Prepared Remarks by Secretary Geithner (pdf)
Congressional Oversight Panel Hearing on TARP
Special Report: Wall Street Under Fire
For example, Geithner pointed to the government's sale of approximately 20 percent of its holdings of Citigroup common stock in April and May, totaling $6.2 billion, earning a profit of $1.3 billion.
He acknowledged there likely will be a partial loss from the rescue of giant insurer American International Group Inc., into which the government plowed $182 billion.
Geithner also said the auto industry has made significant structural changes, and the prospects that General Motors and Chrysler will repay the nearly $60 billion in bailout money have improved.
The oversight panel was created by Congress to oversee the Treasury Department's financial bailout program that came in at the height of the financial crisis in the fall of 2008. The panel has been critical of the politically unpopular program, known as the Troubled Asset Relief Program or TARP, which included aid to banks, AIG and the automakers. It is scheduled to expire on Oct. 3, and no new money will be available after that.
The panel's chair, Elizabeth Warren, underlined concerns that regional and small banks could be facing $200 billion to $300 billion in losses in the next few years on commercial real estate loans, and thousands of banks could fail as a result.
"This panel must know whether Treasury has carefully monitored the financial system to measure potential risks," Warren said. She criticized the department for not conducting additional stress tests of the financial system, as was done with the 19 biggest banks.
Panel members also criticized progress of the Obama administration's flagship effort to help people in danger of losing their homes, which is falling flat, according to numbers released Monday. More than a third of the 1.24 million borrowers who have enrolled in the $75 billion mortgage modification program have dropped out. That exceeds the number of people who have managed to have their loan payments reduced to help them keep their homes.
Last month alone, 155,000 borrowers left the program, which is administered by the Treasury Department - bringing the dropout total to 436,000 since the program began in March 2009.
Analysts expect the majority will end up in foreclosure and that could slow the broader economic recovery.
Richard Neiman, an oversight panel member who is New York's top banking regulator, said many families that relied on the government's program to keep their homes "may be left out in the cold." He asked Geithner why thousands of mortgage modifications were canceled.
Geithner said the homeowners involved were unable to prove income and therefore their eligibility for the program. Around 1.2 million people were given temporary modifications without proof of income as a stopgap measure, he said, and they were eventually required to provide the documentation. Many of them were disqualified as a result. The government "erred on the side of speed," he said.
Addressing the role of banks that collect mortgage payments, also known as loan servicers, Geithner said, "Servicers have done a terrible job of making sure they have done everything they can" to help struggling homeowners. Under the program, the services receive a total of up to $75 billion in tax incentives to reduce borrowers' monthly payments.
Geithner said AIG is making progress in restructuring its operations and divest businesses so that taxpayers can recoup their investment. However, he added, the government's investment "will likely still result in some loss."
The Congressional Budget Office has estimated that taxpayers will lose $36 billion. A large part of the money needed to repay the government will come from the sale of assets.
To date, 707 banks have received a total of $205 billion under the TARP program; $142 billion has been repaid. The government has received $17 billion in dividend payments from banks.
Geithner told the panel that TARP and other actions taken by the government, many of which he characterized as unpopular but essential, "have helped stabilize the financial system and restore economic growth."
He admitted that the economy is still going through "an incredibly difficult period," with millions unemployed and suffering from the damage of a deep recession.
"Nevertheless, thanks to the coordinated and forceful actions of Congress, the Obama administration, the Federal Reserve, the FDIC, and other regulatory agencies, the U.S. financial system is much stronger today than it was in early 2009," Geithner said.
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[quote]House Democrat leader Steny Hoyer will today announce that the US will not pass a budget in 2010 as ?It isn?t possible to debate and pass a realistic, long-term budget until we?ve considered the bipartisan commission?s deficit-reduction plan, which is expected in December." Yet "the House has never failed to pass an annual budget resolution since the current budget rules were put into place in 1974." The real reason of course is that the budget would indicate new and unprecedented trillions in deficits, which would wreak havoc on Democrat chances to contain their upcoming mid-term election loss to just "landslide" status, instead of what is increasingly shaping up as being more in the "apocalyptic" category.[/quote]
Kinda puts Egg ALL OVER Geithner's face doesn't it? Why is CBS.com ignoring this story?!
Geithner is talking about just the icing on the cake, not the real cake that they (Wall Street) stole from us in the bubble and then again in the alleged bailout.
So, running down the list, the banks paid back TARP. That's a +, but....
1. What was the value for bank charter, to get cheap access to the Fed's funds? did they pay back this value yet? No!
2. How about the payment of interest on the banks' excess reserves at the Fed. Have the banks repaid that yet? No!
3. The Fed and the Treasury have purchased hundreds of billions of dollars of Agency debt, Agency mortgage-backed securities (MBS) and related securities through Treasury purchase programs. Have the banks paid back the capital behind those purchases yet? No!
4. How about the Term Auction Facility? Has the capital behind the benefits of that program been paid back? No!
5. Then there is the Primary Dealer Credit Facility (PDCF), has this been paid back? No!
6. Do you remember the Term Asset-Backed Securities Loan Facility (TALF)? Have the funds behind that been paid back? No!
7. What about the PPIP? No!
8. Hey, there's the Foreign Exchange Swap programs (the currency swap lines, that saved not only our banks but out banks facing counterparties who were short on dollars), has that been paid back? No!
9. There's the Commercial Paper Funding Facility (CPFF), have the funds behind that been paid back? No!
10. Most importantly, the opportunity cost of ZIRP, which hurts those who do not speculate (or have not speculated) with near free money! How do you pay that back to grandma and her .017% CDs?
Bush bailed out the banks. TARP funds were approved by the last administration before President Obama took office. I guess your beef is with W Bush. You can go to Crawford and give him a piece of your mind. Your recollection of recent history and actual facts boggles the mind. Please, see a doctor.