Geithner: Some rescue programs will end, others won’t
Tim Geithner testified before the Congressional Oversight Panel for TARP this afternoon. A few interesting comments with respect to Treasury’s bailout initiatives:
On PPIP (Public Private Investor Program):
The Treasury will continue … its plans to buy small-business loans and to remove toxic assets from bank balance sheets through the Public-Private Investment Program, a Treasury official told reporters earlier today on condition of anonymity. The first PPIP funds are expected to begin operating later this month or in October, the official said.
This is bad news. PPIP was a terrible idea to begin with. It provides cheap, non-recourse government financing to encourage investors to buy toxic assets from the banks. This takes banks off the hook and puts taxpayers on it.
Other, unused programs will be allowed to expire, including a program guaranteeing money-market mutual funds and the Capital Assistance Program, which was established earlier this year to provide extra money to banks that needed it and couldn’t access private markets.
“Unused” doesn’t seem a fair modifier to me. No, there weren’t any money market funds that broke the buck and required a taxpayer bailout, but the industry as a whole has benefited tremendously from the Treasury guarantee they’ve been able to market to investors.
Geithner refused to rule out extending the bailout program when it expires at the end of this year. The law, passed last October, allows the Treasury secretary to keep it running for another nine months if it is “necessary to assist American families and stabilize financial markets.”
The Obama administration “is going to think that through very carefully,” Geithner said, adding that some of the efforts, such as mortgage relief, are likely to continue past Dec. 31.
No doubt Geithner likes having a $700 billion cookie jar to dip into if markets hiccup.