* US' Geithner says TARP cost likely under $25 billion
* US financial rescue cheap compared to past-Geithner
* Geithner hopes Fannie, Freddie to write down principal
(Adds comments, details on housing rescue efforts)
By David Lawder
WASHINGTON, Dec 16 The price of corporate
bailouts in 2008 and 2009 looks cheap compared to past crises,
U.S. Treasury Secretary Timothy Geithner said on Thursday,
while urging more drastic action from housing finance giants
Fannie Mae and Freddie Mac to help homeowners.
For the first time, Geithner said Fannie Mae FNMA.OB and
Freddie Mac FMCC.OB should take part in Obama administration
programs to write down principal on loans for those who owe
more than their homes are worth, often referred to as
underwater mortgages. [ID:nN16238628]
Vowing that work on housing "is not done," Geithner told a
congressional panel that the Treasury would likely lose money
on its housing support programs, but probably faces a final net
cost of less than $25 billion on the $700 billion Troubled
Asset Relief Program (TARP) portion of the bailout.
Geithner told the bailout overseers that Treasury expects
to earn a profit on its remaining support under TARP for banks,
automakers, credit markets and American International Group
He said the overall direct cost of all of the government's
financial rescue efforts, including more than $150 billion to
cover Fannie and Freddie losses, will be less than 1 percent of
U.S. gross domestic product, Geithner said.
"The overall costs will be incredibly small in comparison
to almost any experience we can look at in the United States or
around the world," he told the Congressional Oversight Panel
that has overseen the TARP since it was launched at the peak
of the crisis by the Bush administration in 2008.
Geithner conceded the U.S. economy remains scarred by the
crisis, with unemployment near 10 percent, while regulators
across Washington moved to implement a range of post-crisis
regulatory reforms approved in July.
Asked about a new Congressional Budget Office estimate that
TARP's net cost will be as low as $25 billion, Geithner said:
"I suspect that number will be too high".
TARP PRICE-TAG PLUMMETS
The estimated cost of TARP -- just one part of crisis
supports that totaled trillions of dollars -- has fallen
The CBO initially expected the government to take a $350
billion hit on TARP. Treasury's most recent estimate was for
about $30 billion, after all investments in AIG are sold.
The less-than 1 percent estimate for all government support
compares to about 2.4 percent of GDP spent to deal with the
savings and loan crisis of the 1980s and 90s, according to the
Government Accountability Office.
Geithner's testimony came a day after the Treasury
collected another $2.1 billion from its $49.5 billion bailout
investment in General Motors Co (GM.N) and is preparing to
begin selling shares in AIG next year.
The Treasury secretary appeared before the TARP oversight
panel during a busy week for regulators moving to implement the
Dodd-Frank law approved in July with the goal of curbing Wall
Street risk-taking and protecting consumers.
The top U.S. futures regulator on Thursday moved to prevent
speculators from distorting markets in oil and other physical
And Federal Reserve Board staff unveiled a proposal that
would cap the amount banks and other debit card issuers charge
retailers at 12 cents per transaction. [ID:nWEN4611]
On Tuesday, the Federal Deposit Insurance Corp proposed
requiring that bank holding companies maintain minimum capital
levels as strong as their deposit-taking units.
And the Securities and Exchange Commission on Wednesday
proposed requiring companies to declare the source of certain
metals and ores, another Dodd-Frank measure, an effort to
reduce the flow of money to armed rebels in the Democratic
Republic of Congo. [ID:nN15228409]
Regulators must craft more than 200 rules before July 2011,
including a new regulatory regime for the over-the-counter
derivatives market. [ID:nN14289632]
Regarding housing rescue efforts, Geithner said he was
hopeful that Fannie and Freddie would participate in a Federal
Housing Administration refinancing program that reduces
The program has had little effect, largely because Fannie
and Freddie, which now dominate the mortgage market, have not
shown willingness to slash mortgage principal, which would
likely increase the need for government capital injections.
"We think there is a pretty good economic case for Fannie
Mae and Freddie Mac to participate in those programs, and we
are in the process of talking to the FHA about those, about the
merits of those programs, about their concerns," he said.
(Reporting by David Lawder; Editing by Kevin Drawbaugh and Tim