TARP Lives to See the New Year...Now What?

Treasury Secretary Timothy Geithner notified Congress today that the $700 billion Troubled Asset Relief Program (TARP) would be extended until October 3, 2010 – a move that, although expected, adds fuel to an ongoing debate on Capitol Hill whether to wind down the politically unpopular program or utilize its excess funds for broader economic recovery efforts.


In a letter sent to House Speaker Nancy Pelosi and Senate Majority Leader Harry Reid, Geithner sought to quell political concerns by outlining a TARP “exit strategy” and narrowing the program’s focus to three specific areas in 2010: home foreclosure mitigation; small-business lending; and the Term Asset-Backed Securities Loan Facility (TALF) in order to facilitate lending through securitization markets.  According to Geithner, no TARP funds will be spent beyond these specific areas “unless necessary to respond to an immediate and substantial threat to the economy.”  In addition, the Capital Purchase Program – aimed at boosting bank lending through nearly $250 billion in direct capital injections – will cease.


Key to the administration’s TARP extension is the assumption that only $550 billion of the $700 billion program will be necessary for deployment, a figure buoyed by Treasury estimates that TARP-recipient banks could repay as much as $175 billion by the end of 2010.  Sanguine figures such as these have opened the floodgates to recent congressional proposals that would use TARP proceeds to create or expand economic recovery initiatives -- including a job-creation proposal outlined yesterday by President Obama – and, at the same time, remain budget-neutral.

Despite legal restrictions that will likely hamper the administration’s ability to tap TARP funds directly for programs that are indirectly tied to the financial market crisis, several lawmakers have offered amendments to the Wall Street Reform and Consumer Protection Act of 2009 (H.R. 4173) – slated for House floor consideration later today – to divert TARP funding, including:

  • Reps. Frank (D-MA) and Waters (D-CA) – Amendment reallocates $4 billion in TARP funds for mortgage relief efforts, including $3 billion to the Department of Housing and Urban Development (HUD) to issue low-interest loans to unemployed homeowners; and $1 billion for state and local governments to purchase foreclosed or abandoned properties.
  • Rep. Crowley (D-NY) – Amendment reallocates TARP funds to increase by $20 billion the authorized amounts of loans guaranteed by the Small Business Administration’s 7a loan program in FY2010 and FY2011.
  • Rep. Matsui (D-CA) – Amendment reallocates TARP funds to the President’s Making Home Affordable program.

The TARP debate in Washington will only heat up in the days ahead. Stay tuned for additional updates.

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