Tuesday, February 3, 2009

House Republicans Press Treasury Secretary Geithner for TARP “Exit Strategy”

House Republican leaders today wrote to Treasury Secretary Timothy Geithner, inquiring about the Obama Administration’s “exit strategy” from the Troubled Assets Relief Program (TARP). The letter comes as Geithner and other Administration officials are determining how to use the second $350 billion installment of TARP funds President Obama requested last month and whether to request additional taxpayer funds beyond the initial $700 billion authorized last year.

“Because the Administration has committed itself to assisting the auto industry, satisfying commitments made by the previous Administration, and devoting up to $100 billion to mitigate mortgage foreclosures, it has been reported that President Obama might need more than the $700 billion authorized by the Emergency Economic Stabilization Act (‘EESA’) to fund a ‘bad bank’ to absorb hard-to-value toxic assets,” wrote the leaders. “In light of these commitments – which come at a time when the Federal Reserve is flooding the financial system with trillions of dollars and the Congress is finalizing a fiscal stimulus that is expected to cost taxpayers more than $1.1 trillion – it is not surprising that the American people are asking where it all ends, and whether anyone in Washington is looking out for their wallets.”

Specifically, the leaders asked Secretary Geithner to provide answers to six questions before the Administration determines the next steps for the TARP program, including:

1. How does the Administration plan to maximize taxpayer value and guarantee the most effective distribution of the remaining $350 billion of TARP funds?

2. How is the Administration lending, assessing risk, selecting institutions for assistance, and determining expectations for repayment?

3. Will the Administration opt for a complex “bad bank” rescue plan? How can the “bad bank” efficiently price assets and minimize taxpayer risk? Will financial institutions be required to give substantial ownership stakes to the Federal government to participate in the program?

4. Is a “bad bank” plan an intermediate step that leads to nationalizing America’s banks?

5. Can you elaborate on your plans for the use of an insurance program for toxic assets? Specifically, will you seek to price insurance programs to ensure that taxpayer interests are protected? If so, how will you do so?

6. What is the exit strategy for the government’s sweeping involvement in the financial markets?

“Indeed, a bipartisan majority of the House – 171 Republicans and 99 Democrats – recently expressed the same concerns, voting to disapprove releasing the final $350 billion from the TARP,” the leaders concluded. “As we noted in our December 2, 2008 letter to then-Secretary Paulson and Chairman Bernanke, we realize that changing conditions require agility in developing responses. However, the seemingly ad hoc implementation of TARP has led many to wonder if uncertainty is being added to markets at precisely the time when they are desperately seeking a sense of direction.”

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