WASHINGTON: The Obama administration on Thursday sent its clearest signal yet that it is prepared to extend its $700 billion bailout for Wall Street for another year, even as lawmakers said they were frustrated that not enough was being done to help the average American.
"We still have work to do," said Herbert Allison Jr., the senior Treasury official in charge of the bailout fund.
While some economic indicators suggest the nation is beginning to heal from the worst crisis in decades, experts warn that the market is fragile.
Hundreds more banks are expected to fail in the next few years, largely because of souring loans for commercial real estate.
In his testimony, Allison repeatedly deferred to Treasury Secretary Timothy Geithner on whether the administration would authorize an extension of the bailout program through next year as the law allows.
At the same time, Allison said further government intervention in the market may be necessary because of the decline in commercial real estate.
"In this context, it is prudent to maintain capacity to address new developments," Allison told the Senate Banking, Housing and Urban Affairs Committee.
"By bolstering confidence, having such capacity may actually reduce the need to use it."
Congress approved the rescue plan, known as the Troubled Asset Relief Program, with bipartisan support in October 2008 at the request of then-President George W. Bush during the height of the financial crisis.
The Treasury Department has the option of extending the program to October 2010 so long as it provides a justification to Congress before the end of the year.
According to the administration's latest report, the Treasury has obligated $443.8 billion from the fund to specific institutions.
Banks have paid back the Treasury $70.3 billion of the assistance they received, and they have paid nearly $9.4 billion in dividends and interest payments.
TARP, as the program is commonly known, is credited in part with pulling back the financial sector from near collapse last year.
But its infusions of money into huge banks, the giant insurer AIG and the auto industry have been unpopular with the public and in Congress, where lawmakers are under pressure to save jobs and stop foreclosures.
"We can get billions out. We can buy General Motors overnight, but we can't help a homeowner," said Sen. Mike Johanns, a Republican.
Moreover, Treasury has regularly sparred with the watchdog agency assigned to oversee it, and officials concede that the department will not recover all of the money it has spent on the program.
"It is extremely unlikely that the taxpayer will see a full return on its TARP investment," Neil Barofsky, the program's special inspector general, told the Senate committee.
Barofsky also complained that Treasury's approach toward public accountability "remains a significant frustration." Barofsky has repeatedly asked Treasury to release more information about how banks are using their share of the TARP money.
Andrew Williams, a Treasury spokesman, said that the department has implemented the vast majority of Barofsky's recommendations for the program and is taking steps to increase transparency "to ensure taxpayer funds are used prudently and effectively."
Senate Republicans were adamant that the government terminate the program now that the United States is no longer in a state of emergency.
Sen. David Vitter, a Republican, said TARP was billed as "an extraordinary response to an absolutely extraordinary threat" but was shaping up to be a permanent fixture in government.
Allison denied this, telling Vitter "we'd like to see this wound down as soon as possible."
He later noted that the program would end next year regardless Sen. Christopher Dodd, who chairs the Banking Committee, questioned whether the government was doing enough to prevent foreclosures but said he didn't regret helping to orchestrate the rescue fund.
"With the time we were given, and the circumstances we were confronted with, I think we did the right thing, and I think history will prove that to be the case," said Dodd, a Democrat.
Bush administration officials initially said the money would be spent to buy up bad assets from financial institutions.
Under Bush and President Barack Obama, however, the rescue fund has also been used to bail out the auto industry and to obtain ownership interests in banks and insurance giant American International Group. - AP
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