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Extension Of TARP Now Official: TARP Maturity To Suspiciously Coincide With Mid-Term Elections

Tyler Durden's picture




 

Treasury Department Releases Text of Letter from Secretary Geithner
to Hill Leadership on Administration’s Exit Strategy for TARP

WASHINGTON – The U.S. Department of the Treasury released the
text of identical letters sent today from Secretary Tim Geithner to
Speaker Nancy Pelosi and Senator Harry Reid outlining the
Administration's exit strategy for the Troubled Asset Relief Program
(TARP) established by the Emergency Economic Stabilization Act of 2008
(EESA). The text of the letter to Speaker Pelosi follows.

December 9, 2009

The Honorable Nancy Pelosi
Speaker          
U.S. House of Representatives
Washington, DC 20515

Dear Madam Speaker:

I am writing to update you on the status of the Obama
Administration's financial policies, including programs initiated under
the Troubled Asset Relief Program (TARP) established by the Emergency
Economic Stabilization Act of 2008 (EESA), the results they have
achieved, the challenges ahead, and our plan for exiting TARP.

These policies are working.  When the Obama Administration took
office, the financial system was extremely fragile and the economy was
contracting sharply.  The Administration's financial and economic
policies have helped to shore up confidence in our financial system. 
Credit is starting to flow again to consumers and businesses, and the
economy is growing.  Further, private capital is replacing public
capital in our major institutions.

As a result of improved financial conditions and careful stewardship
of the program, losses on TARP investments are likely to be
significantly lower than previously expected.  We now expect a positive
return from the government's investments in banks.  These banks will
soon have repaid nearly half of the TARP funds they received.  We also
expect to recover all but $42 billion of the $364 billion in TARP funds
disbursed in FY2009.  Further, we plan to use significantly less than
the full $700 billion in EESA authority.  As a result, we expect that
TARP will cost taxpayers at least $200 billion less than was projected
in the August Mid-Session Review of the President's Budget.

But significant challenges remain.  Too many American families,
homeowners, and small businesses still face severe financial pressure. 
Although the economy is recovering, foreclosures are increasing, and
unemployment is unacceptably high.  Businesses are still cautious in
the face of uncertainty about the strength of the recovery, and many
small businesses face very difficult credit conditions.  Although bank
lending standards are starting to ease, many categories of bank lending
continue to contract.  This contraction has hit small businesses very
hard because they rely heavily on such lending, and do not have the
ability to substitute credit from securities issuance.  Commercial real
estate losses also weigh heavily on many small banks, impairing their
ability to extend new loans.

Further, the recovery of our financial system remains incomplete. 
And near-term shocks to that system could undermine the economic
recovery we have seen to date.

Exit Strategy for TARP

Our exit strategy for TARP balances the mandate of EESA to address
these challenges with the need to exercise fiscal discipline and reduce
the burden on current and future taxpayers.  There are four broad
elements to our strategy.

First, we will continue terminating and winding down many of the
government programs put in place last fall.  In September, Treasury
ended its Money Market Fund Guarantee Program, which guaranteed at its
peak over $3 trillion of assets.  The program incurred no losses, and
generated $1.2 billion in fees.  The Capital Purchase Program, through
which the majority of TARP investments in banks have been made, is
effectively closed.  Before this Administration took office, nearly
$240 billion in TARP funds had been committed to banks.  Since January
20, we have committed about $7 billion to banks, much of which went to
small institutions.  Major U.S. banks subject to the "stress test"
conducted last spring have raised over $110 billion in high-quality
capital from the private sector.  And banks will soon have repaid $116
billion of TARP funds

Second, we will limit new commitments in 2010 to three areas.

  • We will continue to mitigate foreclosure for responsible American
    homeowners as we take the steps necessary to stabilize our housing
    market.
  • We recently launched initiatives to provide capital to small
    and community banks, which are important sources of credit for small
    businesses.  We are also reserving funds for additional efforts to
    facilitate small business lending.
  • Finally, we may increase our commitment to the Term
    Asset-Backed Securities Loan Facility (TALF), which is improving
    securitization markets that facilitate consumer and small business
    loans, as well as commercial mortgage loans.  We expect that increasing
    our commitment to TALF would not result in additional cost to taxpayers.

Beyond these limited new commitments, we will not use remaining EESA
funds unless necessary to respond to an immediate and substantial
threat to the economy stemming from financial instability.  As a nation
we must maintain capacity to respond to such a threat.  Banks are still
experiencing significant new credit losses, and the pace of bank
failures, which tend to lag economic cycles, remains elevated.  At the
same time, many of the Federal Reserve and FDIC programs that have
complemented TARP investments are ending.  This creates a financial
environment in which new shocks could have an outsized effect –
especially if an adequate financial stability reserve is not
maintained.  As we wind down many of the government programs launched
initially to address the crisis, it is imperative that we maintain this
capacity to respond if financial conditions worsen and threaten our
economy.  However, before using EESA funds to respond to new financial
threats, I would consult with the President and Chairman of the Federal
Reserve Board and submit written notification to the Congress.  This
capacity will bolster confidence and improve financial stability,
thereby decreasing the probability that it will need to be used.  This
is the third element of our exit strategy.

In order to accomplish these goals, pursuant to Section 120(b) of
EESA, I certify that I am hereby extending the authority provided under
the Act to October 3, 2010.
  This extension is necessary to assist
American families and stabilize financial markets because it will,
among other things, enable us to continue to implement programs that
address housing markets and the needs of small businesses, and to
maintain the capacity to respond to unforeseen threats, as described
above.

While we are extending the $700 billion program, we do not expect to
deploy more than $550 billion. 
We also expect up to $175 billion in
repayments by the end of next year, and substantial additional
repayments thereafter.  The combination of the reduced scale of TARP
commitments and substantial repayments should allow us to commit
significant resources to pay down the federal debt over time and slow
its growth rate.

Even with this extension, we expect that TARP will cost taxpayers at
least $200 billion less than was projected in the August Mid-Session
Review of the President's Budget, including $25 billion in potential
costs from new TARP commitments in 2010.  We expect that the vast
majority of these potential costs would come from mitigating
foreclosure for responsible American homeowners as we take the steps
necessary to stabilize our housing market.

The final element to our exit strategy is how we manage equity
investments acquired through EESA while protecting taxpayers.  We will
continue to manage those investments in a commercial manner and seek to
dispose of them as soon as practicable.  We will exercise our voting
rights only on core issues such as election of directors, and we will
not interfere in the day-to-day management of individual companies.  In
addition, as the steward of taxpayers' funds, Treasury will continue to
manage investments in a manner that ensures accountability,
transparency and oversight.  And we will work with recipients of EESA
funds and their supervisors to accelerate repayment where appropriate. 
We want to see the capital base of our financial system return to
private hands as quickly as possible, while preserving financial
stability and promoting economic recovery.

History suggests that exiting prematurely from policies designed to
contain a financial crisis can significantly prolong an economic
downturn.  We must not waver in our resolve to ensure the stability of
the financial system and to support the nascent recovery that the
Administration and the Congress have worked so hard to achieve. 
Improvements in the financial performance of EESA programs put us in a
better position to address the economic and financial challenges many
Americans still face.  I look forward to continuing to work with you to
achieve these
goals.                                                               

Sincerely,

Timothy F. Geithner

Identical copy of this letter sent to:
            The Honorable Harry Reid

cc:       The Honorable Barney Frank
           The Honorable Spencer Bachus
           The Honorable David Obey
           The Honorable Jerry Lewis

 

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Wed, 12/09/2009 - 11:08 | 157810 mr brincq
mr brincq's picture

with what fairytale does the "recovery church" now come up with to support these markets....I will wait patiently on the sideline...

Wed, 12/09/2009 - 11:54 | 157886 Divided States ...
Divided States of America's picture

None of those dipshits should have the word HONORABLE in front of their names. Makes me effin sick.

 

Thu, 12/10/2009 - 02:09 | 158688 john bougerel
john bougerel's picture

"These policies (read slush funds) are working."

 

Remember TARP was to buy "troubled assets" not inject capital willy-nilly into bankrupt and insolvent financial firms. The initial goal was to "save the banking system" the latter goal was to save the banksters. HUGE DIFFERENCE not just in short term outcomes but in long term outcomes for which the American public will pay dearly for Paulson's ginormous indiscretion

Wed, 12/09/2009 - 11:14 | 157817 ChickenTeriyakiBoy
Wed, 12/09/2009 - 11:17 | 157818 Chumly
Chumly's picture

The same clowns who brought about the disaster claim to have saved us from it.

The only thing TTT will have to do next year is change the date on the letter to "October 3, 2011" and add $100 billion here and subtract $100 billion there.

Wed, 12/09/2009 - 11:16 | 157819 aint no fortuna...
aint no fortunate son's picture

"This extension is necessary to assist American families and stabilize financial markets because it will, among other things, enable us to continue to implement programs that address housing markets and the needs of small businesses..."

Hmm, how noble... to assist American families and small businesses... so, that's what they've been doing... I was kinda curious about their motives there for awhile but that clears it up just fine. 

OK folks, move on...

Wed, 12/09/2009 - 11:35 | 157853 tip e. canoe
tip e. canoe's picture

"to assist American families and small businesses..."

...by encouraging them to take on more debt...

Wed, 12/09/2009 - 13:10 | 157983 Assetman
Assetman's picture

Wasn't TARP orginally designed to purchase auctioned toxic assets in the financial system?  And then it was actually used... for what?

So now... we are being led to believe that TARP will be used for American families and small businesses.  Yet, the original $700 billion remains in place to make sure the TBTF's get their next capital injections when needed.

Who does Turbo Timmy think he is fooling?

Oh, yeah-- nevermind-- it's CONgress.

 

Wed, 12/09/2009 - 14:00 | 158027 digalert
digalert's picture

It's TOXIC

TTGeithner: "TARP will be refocused to aid homeowners facing foreclosure"

This was sold as a family foreclosure saving measure. It's amazing how memories work and these beliefs tend to follow party lines. Everyone, CONgress, talks like this was a bank rescue bill, when at the time only shifty Paulson and bubble Ben knew this was a bank buddy rescue fund.

Toxic turned troubled turned legacy loans, BBBernanke puts $500 bil on a swift boat to foreign banks never to be seen again, AIG, GM, FNM, FRE, MBS... blah blah blah

Here we are a year later and the tax cheat say's we need to help the families in foreclosure. While CONgress (screw the taxpayer) say's we need this slush fund for job creation (magic) and anywhere else we may have bungled and need to cover up.

To further help you forget, let us never use HAMP, HARP, HOPE...in the same discussion with TARP because we know how well that is working.

Wed, 12/09/2009 - 11:16 | 157820 Selah
Selah's picture

Why does Barney Frank have "Honorable" in front of his name?

And why wasn't Dean Martin CC'd?

Wed, 12/09/2009 - 11:31 | 157845 TumblingDice
TumblingDice's picture

This is not a surprise.

Wed, 12/09/2009 - 11:33 | 157850 Anonymous
Anonymous's picture

There is nothing honorable about Harry Reid. He has a legitimate chance to be judged by history as the most foul, self centered, and damaging politician in American history...it's a three horse race between him, Pelosi, and Jesus Obama for that title.

Wed, 12/09/2009 - 11:34 | 157852 Anonymous
Anonymous's picture

Also, a majority of the Recovery Act funds remain to be disbursed:

http://www.cnsnews.com/news/article/57617
http://www.gao.gov/new.items/d10223.pdf

- Heretic

Wed, 12/09/2009 - 11:39 | 157863 Mad Max
Mad Max's picture

I want to see this run through ZH's fraudspeak-to-truth translator.

Wed, 12/09/2009 - 11:42 | 157866 Anonymous
Anonymous's picture

In a letter to House and Senate leaders, Geithner said the extension is "necessary to assist American families and stabilize financial markets." Timmy

"The recovery of our financial system remains incomplete," Geithner told lawmakers. "And, near-term shocks to that system could undermine the economic recovery we have seen to do." Timmy

Get ready for a big bang. I smell trouble lurking.

Wed, 12/09/2009 - 22:39 | 158538 TheGoodDoctor
TheGoodDoctor's picture

From what I heard from Bob Chapman is that FASB is requiring the banks go back to mark to market at the beginning of next year. 1/1/10.

Also, they will require any loans to be capitalized with 50% cash and 50% collateral to the total of 125% of the loan or no loan.

Now what I am fearing is that they pass the health care bill before the end of the year with some crazy shit on the end of it regarding 401k's, IRA's etc.

I also read that Pelosi is looking to tack on a repeal of the Bush tax cuts ASAP.

Can anyone confirm or deny these items?

Wed, 12/09/2009 - 11:46 | 157873 Ragnarok
Ragnarok's picture

Does thid still have to be voted on?  If so won't there be a shit tonne of opposition? I mean they still haven't raised the debt ceilling yet for fear of backlash before getting healthcare passed (which is looking more likely everyday).

Wed, 12/09/2009 - 12:04 | 157895 Cursive
Cursive's picture

According to his letter, Geithner has the authority under the law to extend it without further Congressional approval.  I found this to be the most interesting part of the letter since TARP has always been a Trojan Horse of sorts:

"Finally, we may increase our commitment to the Term Asset-Backed Securities Loan Facility (TALF), which is improving securitization markets that facilitate consumer and small business loans, as well as commercial mortgage loans.  We expect that increasing our commitment to TALF would not result in additional cost to taxpayers."

 

Wed, 12/09/2009 - 12:05 | 157902 docj
docj's picture

What makes you think that this Administration has any intention, or even inclination, of bring CONgress on board for this?  I mean, the EPA is now going to regulate the products of respiration without so much as a debate on crap-n-tax.  I doubt they have any concerns about the extra-Constitutional prolonging this never-really-above-board piece of "legislation".

Wed, 12/09/2009 - 12:52 | 157955 Ragnarok
Ragnarok's picture

I thought I felt something poking me in the ass..... thanks for the clarification.

Wed, 12/09/2009 - 11:55 | 157887 Anonymous
Anonymous's picture

From the President's speech yesterday:

"So to help support these efforts, we’re going to wind down the Troubled Asset Relief Program, or TARP – the fund created to stabilize the financial system so banks would lend again."

From Timmay's letter today:

"While we are extending the $700 billion program, we do not expect to deploy more than $550 billion."

I remember reading somewhere that whatever President Obama says it is a good bet to expect that the intent is the exact opposite.

This is not only about the midterms but also about TALF and CMBS as Timmay so eloquently states.

Is any of this a surprise, it shouldn't be, so the question is how does one play this for maximum profit.

Wed, 12/09/2009 - 12:01 | 157896 Anonymous
Anonymous's picture

Can someone please tell me why no one in congress will ask the most obvious question.

If the Economy is recovering. Then why do we need to extend these programs? Please someone ask the question.

Wed, 12/09/2009 - 12:11 | 157909 Taxmetodeath
Taxmetodeath's picture

Can someone please tell me why no one in congress will ask the most obvious question.

If the Economy is recovering. Then why do we need to extend these programs? Please someone ask the question.

 

Wed, 12/09/2009 - 12:31 | 157919 Silver-Is-Better
Silver-Is-Better's picture

Can someone please tell me why no one in congress will ask the most obvious question.

If the Economy is recovering. Then why do we need to extend these programs? Please someone ask the question.

They are afraid to ask the question, for they know the answer already.

Wed, 12/09/2009 - 12:38 | 157931 Anonymous
Anonymous's picture

Tim probably doesn't have the authority to extend the program. Only congress does but if congress doesn't want a new debate then extend and pretend you have the authority.

Wed, 12/09/2009 - 12:46 | 157945 Guy Fawkes
Guy Fawkes's picture

Failure! ... giant, ass-sucking failure.

The taxpayer gave Wall Streets biggest banks money with which to gamble. Some still loss while others invested and made money. Woo Hoo ... so fucking what. Wall Street generating positive cash flow is nothing new.

The problem is still the toxic debt which has not gone away. It has been transfered to the Fed's balance sheet in exchange for UST or still sits on the banks balance sheets at 100 cents on the $. It has not gone away! It is only by FASB accounting gimmicks that they have not collapsed under the weight of their unbridled greed.

 

Wed, 12/09/2009 - 12:48 | 157948 JR
JR's picture

Will the real chief executive please stand up?  Is it the Senator from Illinois who was elected last November?  Or is it someone else whose message Timothy Geithner brings to us in the name of Barack Obama?  Just who is using Mr. Obama’s name to take taxpayer money and give it to_________?  (Fill in the blank.)

Wed, 12/09/2009 - 13:03 | 157967 Mad Max
Mad Max's picture

The "chief executive" is not the partial-term Senator from Hawaii/Indonesia/Nawlins on the Lake.  Who exactly he/she is isn't clear, but if you look at billionaires who contributed to his campaign you might start getting some ideas.

Wed, 12/09/2009 - 12:53 | 157957 Anonymous
Anonymous's picture

The 'Taxpayer Ass Raping Program' or 'Toxic Asset Relief Program' or whatever they want to call it has become such a clusterfuck that even 'ole Hank what be impressed by what it has morphed into. I listened to damned near every hearing on this last fall in both the house and senate; TARP was going to be used exclusively to relieve the banks of their 'toxic assets'. Has that even happened? As far as I know, they are still there, waiting for their 'real value' to be recognized. These toxic assets had value, maybe in some alternate universe, and their price just hadn't been discovered yet.

Instead, they just shoveled the TARP money over to the banks in order for them to use to recapitalize themselves. Then it was used to bail out two auto companies that should have been put to rest years ago. Now it is going to be used to 'create jobs'.

I just don't even know what to say anymore.... Just when you begin to think that the ship is about to right itself, this group of jokers we have in office find another means to extend the charade a little bit longer. I wish I had the kind of 'jack' Cash-n-carry has so I could build my own retreat away from this madness, because when this all blows-up, the shock waves are going to be epic.

Wed, 12/09/2009 - 13:36 | 158005 Anonymous
Anonymous's picture

If Corzine couldn't buy an election in N.J. what makes them think it's gonna work in 2010.

Wed, 12/09/2009 - 13:38 | 158007 JR
JR's picture

It’s going to break!  The reason the Fed/Treasury is continuing TARP is because they’re under water.  And it’s getting deeper and deeper and they don’t know what to do.  You know how bad it is? Multiply everything they say by 10.

It’s like a giant iceberg and they’re only chipping away at the top.  They have a massive crisis that now extends to the rest of world.  Otherwise, they would not be taking chances of going deeper and deeper into the economic abyss, of getting people angrier and angrier.  The whole country is turning against them, as well as other nations.  In Britain the people are so opposed to the bailouts that benefit the bankers that they’ve demanded a tax on banker bonuses and pushed parliament into it. 

It’s the government and the bankers working together that have created this. And it’s getting worse.  They are developing a public relations problem you can’t believe.  Why are several politicians all of a sudden speaking out against Bernanke? Why would any politician berate such a kindly, gentle man?  Why don’t the people love someone who’s kept them out of another Great Depression?  It’s because the politicians’ constituents are pushing them and beating them around the head. Every time the government/bankers say they have worked out a program, an agreement, that’s going to do more and cost less, the people know they’re going to get cheated. After a while the people just won’t take it anymore.

The bankers and the Obama Administration have a whale underneath the Good Ship Lollipop. Something’s going to break

Wed, 12/09/2009 - 15:10 | 158138 trav777
trav777's picture

they are keeping TARP open because there is no political will for another "Porkulus" bill in the trillion dollar range.

They had 2 9-figure appropriations in the span of a few months, and the people can still do basic math.

Everyone has this sense that we're bankrupt, but wait till it percolates up into the higher consciousness.

Wed, 12/09/2009 - 19:18 | 158378 Anonymous
Anonymous's picture

I think the "threat" is indeed that posited in the article.
It's time to rush everything that can (still) be gotten with a 60 vote Senate and a compliant House.
After 2010, the Dems will still have the White House and the media. The 2 houses of CONgress are in doubt.

Wed, 12/09/2009 - 20:21 | 158419 Zippyin Annapolis
Zippyin Annapolis's picture

What ever happened to the awful CRE  problem? Did Valerie Jarret fix that when no one was looking?

Thu, 12/10/2009 - 21:16 | 159674 rayen36
rayen36's picture

Timothy Fuckmythroat Geithner

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