US Treasury Secretary Timothy Geithner has said the government will extend the $700 billion bailout initiative till October 2010. Unveiled more than a year ago in the wake of the raging financial crisis, the Troubled Asset Relief Programme (TARP) worth $700 billion has mainly provided fresh capital to major banking entities.
Geithner in a letter to the US House of Representatives Speaker Nancy Pelosi said the program would be extended till October 3, 2010. In the coming months, the funds would be utilised for mitigating foreclosures, providing loans for small businesses and improving credit flow in the system.
"While we are extending the $700 billion programme, we do not expect to deploy more than $550 billion. We also expect up to $175 billion in repayments by the end of the next year," Geithner said. According to the Treasury, the cost of the programme for the taxpayers would be at least $200 billion less than earlier expected.
Meanwhile, the US Congressional Oversight Panel in its progress report for TARP, has said the program helped in "stopping economic panic". However, the panel, which is the watchdog for TARP, noted that the long-term stabilising effects of the initiative on the American economy are less clear. "... There is a broad consensus that the TARP was an important part of a broader government strategy that stabilised the US financial system by renewing the flow of credit and averting a more acute crisis," it said.
On the other hand, the panel pointed out that many problems in the economy like soaring bank failures, job losses and toxic assets, continue to remain. Going by the report, markets are dependent on government support and it is still not clear whether the market can withstand the removal of federal aid.
Moreover, the panel noted that there is yet to be a consensus among experts or policy makers, on preventing financial institutions from taking large risks that may adversely impact the national economy.
Regarding the extension of TARP, Geithner said, "History suggests that exiting prematurely from policies designed to contain a financial crisis can significantly prolong an economic downturn. We must not waver in our resolve to ensure stability".
