UPDATE:Treasury Mulling Ways To Size Up Market Rescue Program
Friday December 5th, 2008 / 15h47
(Add mores details from question-and-answer session with Kashkari.) By Maya Jackson Randall Of DOW JONES NEWSWIRES WASHINGTON -(Dow Jones)- Amid growing criticism of its market rescue efforts, the U.S. Treasury Department said Friday that it is working to come up with its own metrics for determining just how effective its key programs have been. In remarks to the Mortgage Bankers Association Friday, Treasury Assistant Secretary Neel Kashkari said the department is particularly focused on sizing up Treasury's "Capital Purchase Program," or CPP, through which the government has been purchasing stakes in banks across the country. Lawmakers on Capitol Hill are becoming increasingly critical of the program, arguing that Treasury's move to inject billions of dollars into financial firms isn't doing enough to boost lending and revive credit markets. Furthermore, earlier this week, the Government Accountability Office, or GAO, issued a report finding that Treasury has failed to address a number of critical issues while implementing its $700 billion rescue plan, known as the Troubled Asset Relief Program. Additionally, the report said Treasury has no plan for making sure firms receiving taxpayer dollars comply with limits on executive compensation and dividend payments. "Treasury is focused on determining the extent of the CPP's desired effect and contributions to our policy objectives, an issue raised by GAO's first report on the program," said Kashkari, the official overseeing Treasury's rescue efforts, at the Washington conference. "Tracking where individual dollars flow through an organization is also difficult. However, we are working with the regulators to try to develop ways to determine the effectiveness of the program." Meanwhile, Kashkari defended Treasury's response to the financial market crisis, saying the department has made significant progress and arguing that the new initiatives helped prevent a financial system collapse. When Treasury launched the capital purchase program in October, "we were at a tipping point," he said. "Credit markets were largely frozen, denying businesses and consumers access to vital funding and credit. A number of institutions had failed or been re-structured." However, there are signs that markets are now improving. For instance, the credit default spread for the eight largest U.S. banks has declined almost 207 basis points since before Congress signed off on Treasury's $700 billion bailout program, he said. Kashkari argued that Treasury has moved with record speed to implement the program and said the program "is becoming more efficient each day." "We often close transactions in a couple weeks - which is a record for either the private or public sector," he said. Still, the official said it could take "a few months" for all of the transactions under its capital purchase program to be processed. Treasury, he said, has disbursed an estimated $151 billion to 52 institutions in 25 states across the country. "We are ramping up quickly from here," he said, noting that there are still more applications under review. Additionally, Kashkari said most of the funds need to get into the financial system before the program can have its desired effects. "We are still at a point of low confidence - both due to the credit crisis and due to the economic downturn," said Kashkari. "While confidence is low, banks will remain cautious about extending credit and consumers and businesses will remain cautious about taking on new loans." In the question-and-answer session, Kashkari said government intervention "was not our first choice" but Treasury officials had to do what was necessary. At the same time, market intervention "always has unintended consequences," he added. Last week, federal regulators announced a new lending facility aimed at reviving consumer lending markets. Kashkari noted that allowing the market for credit cards and auto loans to remain frozen would have had "profound macroeconomic implications." "We want to see the credit crisis run its course, see our institutions healthy...and some return of normalcy, but we're not there yet," Kashkari said in response to a question about why Treasury continues to launch new rescue programs. The market turmoil has "only gotten deeper" and "more severe," he continued. "I'd rather be on our front foot going after the problem with new programs" as opposed to sitting back and saying "let's just see what happens." -By Maya Jackson Randall, Dow Jones Newswires; 202-862-9255, maya.jackson-randall@dowjones.com Click here to go to Dow Jones NewsPlus, a web front page of today's most important business and market news, analysis and commentary: http://www.djnewsplus.com/al?rnd=B8Ivi3kcr48MG8t2c5SWHw%3D%3D. You can use this link on the day this article is published and the following day.
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