Forbes totally gets it. This is a nice way for Forbes to say that “don’t look now but the TARP program is about to go criminal”. And guess whose money is being used… yep, ours.
The Incredibly Ambiguous TARP
WASHINGTON — Treasury Secretary Timothy Geithner sent a letter Wednesday to congressional leaders informing them that he would extend the Troubled Asset Relief Program until October 2010, which he’s allowed to do without Congress’ approval.
Hours later, President Barack Obama gave a brief statement to the press, reiterating remarks he made in a speech Tuesday: “We will wind down the TARP.”
Perhaps what the president meant is that “we will extend our authority and wind down the programs by October of next year.” Since the TARP’s losses are now $200 billion less than previously anticipated, the White House wants to use some of the headroom to invest in job creation. (See “Obama’s Setup”)
Geithner’s letter to congressional leaders says the Treasury Department plans to deploy no more than $550 billion of the $700 billion Congress allocated for TARP. It also says new commitments will be limited to stabilizing the housing market, encouraging small business lending and boosting community banks, and (possibly) increasing federal funding for an already existing effort to securitize consumer loans. The funds for the latter effort have already been set aside for this purpose.
“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,” writes the Treasury secretary, referring to the Emergency Economic Stabilization Act of 2008.
The operative phrase here is “unless necessary,” which is deliberately vague. In fact, that loophole pretty much sums up the entire history of the TARP. In October 2008, the $700 billion bailout was sold as a way to remove toxic assets from banks’ balance sheets. However, the TARP legislation also gave the Treasury secretary the authority to use the funds at his discretion if he deemed it absolutely necessary. That’s exactly what President Bush’s Treasury chief, Hank Paulson, did last year, when he opted for capital injections in banks. The Bush administration also used it to give Chrysler and General Motors a $17.4 billion loan through the first part of 2009.
It makes perfect sense for Geithner to want to retain his authority over TARP: Why put away the guns if you’re not 100% sure that the battle is over? But putting parameters on an extension of the program–with an opt-out clause–is not exactly winding it down.
Look for the Congressional Oversight Panel, a watchdog for TARP spending, to press the Treasury secretary on this issue during his testimony on Capitol Hill on Thursday morning. The other major issue they’re expected to badger him about is whether the so-called headroom in TARP should be used for any other purpose besides reducing the federal deficit. A key member of the panel, Rep. Jeb Hensarling, R-Texas, has been one of the most vocal advocates of ending the bailout program by the end of this year.
Expect Geithner to characterize the future of TARP as an “exit strategy,” as he said in his letter to lawmakers. It is, in the same way that everything after halftime of a football game is an exit strategy.
But most people just call it the second half.