U.S. Treasury Secretary Timothy Geithner is defending the Obama administration's decision to extend its bank bailout program until October of next year, saying the government still needs to be able to respond to any new financial crises that could emerge. Geithner faced a skeptical congressional oversight panel appointed to oversee the Troubled Asset Relief Program, or TARP, on Thursday.
Geithner appeared before the Congressional Oversight Panel just one day after he extended the Troubled Asset Relief Program. He faced questions about why he did not allow the controversial bank bailout program to expire at the end of this year.
Geithner said history shows that ending programs too soon could prolong economic downturns.
"It would be deeply irresponsible and imprudent at this stage - only a year into this recovery process, only three months after we have the first period of growth - to stand back and walk away from those challenges ahead," said Timothy Geithner. "That would leave the taxpayer at much greater risk of future losses."
In response to the escalating world financial crisis, Congress provided the Treasury Department last October the authority to spend $700 billion to stabilize the U.S. economy and preserve home ownership. At the same time, Congress created the Congressional Oversight Panel to make sure the Treasury Department was spending the money wisely.
Committee Chairwoman Elizabeth Warren credited the huge bailout with helping to save the U.S. financial system from collapse. But she said the program posed a real risk because it gave large banks and financial institutions the ability to survive, but it did not provide the same guarantees for small banks and small businesses.
"The unprecedented government actions taken to stabilize the system have created a huge moral hazard that makes our system riskier and that infects the pricing of assets," said Elizabeth Warren.
Warren said the availability of credit remains low, smaller banks continue to fail at unprecedented rates and the home foreclosure crisis has not ended.
Geithner said the Treasury Department is pressuring banks to make more permanent modifications to mortgages, making it possible for more people to keep their homes.
Panel member Paul Atkins, a former member of the Securities and Exchange Commission, suggested that TARP should have been allowed to die because the time of unbridled financial panic has subsided.
"The program no longer can be considered a hastily-arranged effort to arrest a financial free-fall," said Paul Atkins. "I can understand why a Treasury Secretary, any Treasury Secretary really, would want to extend TARP. Why not?"
Atkins called the program "a free option at taxpayers' expense."
Geithner strongly rejected the criticism expressed by many Americans that the government chose to save Wall Street and large financial institutions such as the insurer American International Group, but failed to help average citizens.
"It is not something that is about a set of individual institutions or Wall Street," he said. "It is about the basic fabric of confidence in America, the basic security Americans have in their future."
The Obama administration says that banks are paying back the emergency bailout loans faster than expected and that it hopes to use these funds for a new stimulus package to promote job creation. A number of Republican lawmakers have objected to the plan, saying the money should go to pay down the soaring federal budget deficit.