WASHINGTON - The $700 billion financial bailout program, scheduled to end Dec. 31, will be extended until October to prevent further turmoil in the banking industry, Treasury Secretary Timothy Geithner announced yesterday.
That sets up a struggle between Democrats who favor using some of the leftover money to help generate jobs and Republicans who say it should be used to shrink soaring federal budget deficits.
The extension also will help homeowners struggling to avoid losing homes to foreclosures and small businesses having trouble getting loans from banks.
The administration is now projecting the losses to the government from the bailout program will be about $141 billion - $200 billion less than it estimated two months ago.
The Treasury Department acknowledged for the first time that it lost $61 billion on two key programs. The government is losing more than $30 billion on lifelines extended to insurance giant American International Group Inc., according to Treasury data released in an audit by the Government Accountability Office. It also is losing more than $30 billion on rescues of struggling automakers Chrysler Group L.L.C. and General Motors Co.
The Troubled Asset Relief Program was passed in October 2008 as the nation's financial system - banks, insurance companies, and Wall Street investment firms - was near collapse because of rising defaults related to mortgage loans. Some of the money - $75.4 billion - also was used to rescue GM and Chrysler. An additional $3.5 billion went to automotive suppliers.
About $50 billion went to helping homeowners modify their mortgages to avoid foreclosure. But a watchdog group said yesterday that only about 10,000 homeowners nationwide had received permanent loan modifications so far.
The administration and Democratic leaders have indicated they want to divert some of the unspent bailout funds to a jobs program. Their goal is to refashion a hugely unpopular program viewed by voters as a taxpayer-funded bailout for big Wall Street firms that then reaped millions of dollars in lavish bonuses.
Republicans vowed to keep trying to close down the rescue program by the end of this month. They said any leftover funds should be devoted exclusively to curbing the country's soaring budget deficits.
Testifying before a congressional committee yesterday, Geithner contended that the bailout program helped avert a worse financial outcome. Financial conditions have improved, and the economy has finally pulled out of a steep tailspin and is starting to grow again.
He also said repayments from banks that received TARP support would soon total $116 billion. That includes $45 billion that Bank of America Corp. said yesterday it had repaid. Bank of America said the money came from a combination of cash on hand and the sale of $19.29 billion of securities.