- The Washington Times - Wednesday, May 20, 2009

Treasury Secretary Timothy Geithner told a Senate panel Wednesday that a new public-private partnership to help banks shed their bad assets will be set up in the next six weeks and that the economy is showing convincing signs of improvement.

Mr. Geithner added that stronger oversight of financial services are needed to ward off manipulation and deception in financial services.

“Crisises don’t wind themselves out. To fix them requires the government,” Mr. Geithner said while testifying before the Senate Banking, House and Urban Affairs Committee.

Mr. Geithner was on Capitol Hill to brief senators on the progress of the Troubled Asset Relief Program (TARP), the federal government’s $700 billion bailout of troubled financial institutes.

Banks have been acting much more conservatively and taking less risks in recent months - a positive step necessary to help restore stability to the Wall Street, Mr. Geithner said. But as the economy improves and demand for credit increases, banks must be encouraged to continue lending money. Bank lending has in part been hindered by the amount of real estate-related loans and securities on their balance sheets.

To encourage banks to continue lending, Mr. Geithner said a new public-private partnership would combine up to $100 billion in government funds with private investments in hopes of building a purchasing pool of up to $1 trillion. Treasury has received applications from more than 100 potential fund managers to help run the program.

The program was announced March 23 and some lawmakers have questioned why the program is not yet up and running.

The committee’s ranking Republican, Sen. Richard C. Shelby of Alabama, asked the secretary if the federal government would still have a financial interest in the failed American International Group (AIG) a year from now.

“It’s a black hole” that continues to hemorrhage money, said Mr. Shelby of AIG, which the federal government has an 80 percent controlling interest.

But Mr. Geithner was not optimistic that the government would be able to divest its interests AIG and other troubled companies that have received TARP money anytime soon.

“I think realistically this is going to take time,” he said.

He said, despite the positive signs, the government must continue to take an active role in helping prop up private companies.

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