WASHINGTON (CN) – Treasury Secretary Timothy Geithner defended the Troubled Asset Relief Program before the Senate Wednesday, when the program came under fire from senators who said General Motors, which is now half owned by the government, plans to close plants in the United States and open them in China.
Testifying before the Committee on Banking, Housing, and Urban Affairs, Geithner said the loans will still “save thousands and thousands and thousands of jobs in this country” but admitted “there’s nothing fair in it,” in reference to some of the ways TARP money is handled.
“If we’re putting money into a company that’s going to transfer jobs to China, I don’t want to do it. I’ve got a decent standard of living. I want to keep it,” said Montana Democrat Jon Tester.
TARP is a government program that was set up to buy illiquid “toxic” assets from companies, and allows the government to buy into a participating company’s stock.
General Motors has already received $13.4 billion and is now half owned by the government. Senator Brown Sherrod, a Democrat from Ohio, said the company may need billions more.
Geithner defended the spending. “Crises this severe don’t burn themselves out,” he said. “There has to be intervention from the government.”
But when it came to company policy, Geithner said he would like the government to stay out. “We are trying very carefully not to be involved in those decisions,” he said.
Others complained that the program was not generating enough credit.
Committee Chair Senator Christopher Dodd, a Democrat from Connecticut, quoted his consituents. “Where is the credit? How do I get credit?” he asked. “The very bank that is receiving my tax dollars is turning around and telling me I can’t get a loan.”
Geithner responded in two ways. Mostly, he said it is still too early to feel the effects of the remedies. “We’ve got pretty effective programs in place,” he said. “But they’re just beginning. Realistically, this is going to take time.”
He also said that banks should be careful in spending because too much lending and borrowing was the initial problem. “We’re going through a very traumatic financial crisis that was caused in large part by too much borrowing and too much lending,” he explained.
The government has so far provided TARP funds to more than 5,000 banks in effort to provide them with enough capitol that they will start lending again.
“Every additional dollar of capital gives banks the capacity to expand lending by eight to twelve dollars,” Geithner said.
The American International Group was another hot topic because senators thought the government, which now owns 80 percent of the company, should not be paying full price for AIG’s debts.
GM bondholders, on the other hand, were only paid fifty cents on the dollar when the government bought their debt.
“It seems to me that this is a black hole,” said Alaska Republican Ranking Member Richard Shelby. “We keep pumping billions of dollars into AIG. It’s still hemorrhaging money.”
“Senator, you can’t feel more strongly than me,” replied Geithner. “There’s nothing fair in it.” But if AIG had defaulted, he added, “It would have been materially worse across the country and the world.”
“No. that’s the way TARP was sold, that the sky was going to fall in if we don’t do something,” argued Kentucky Republican Jim Bunning.
Geithner answered, “None of us can know with certainty, even in retrospect, if we took the best option.”
Pointing to falling interest rates, surging rates of mortgage refinancing, and new private investment in securities, the Treasury Secretary concluded, “There are important indications that our financial system is starting to heal.”