Banking Regulators Also Call For TARP Funds to be SpentTop banking officials told Congress on Tuesday the rest of the $350 billion of the bank bailout needs to be released, and also offered their different ideas on how to spend the money.
Federal Reserve vice chairman Donald Kohn and John Bovenzi, the chief operating officer of the Federal Deposit Insurance Corporation, testified before the House Financial Services committee and told lawmakers the second part of the $700 billion Troubled Asset Relief Program, or TARP, is needed to stop the economy and the nation's financial system from sliding further.
The largest part of the first half of the TARP funds went to giant institutions that were seen "too big to fail" such as Citigroup and AIG. Treasury has invested $187.5 billion in 215 banks since last October. Banks that have received TARP funds have some sharp critics who say the banks haven't used the funds for loans to businesses or consumer, but instead have shored up their balance sheets or made acquisitions of other institutions. Because of this perception, the call has gone up for future Treasury Secretary Timothy Geithner to have the second half of the TARP funds spent differently.
Congressional Democrats say some of the money has to help homeowners under foreclosure. Proposed legislation by House Financial Services Chair Barney Frank would take $50 billion from the $350 billion to put toward helping homeowners.
Edward Yingling, president and CEO of the American Bankers Association, also testified and called for making a part of the funds available to more than 3,000 mutual savings banks and S-corporation banks that are shut out of TARP. He says this will increase the flow of credit in the market.
National Deficit Rockets to $485.2 Billion
The financial crisis, subsequent bailouts and ongoing recession have created a budget gap in the federal budget that in first three months of the fiscal year surpasses the level recorded for all of last year.
Treasury Department reports that the federal budget deficit expanded by $83.6 billion in December, which brings the deficit for the first three month of the 2009 fiscal year to $485.2 billion. Last year's total budget deficit was $455 billion; in 2007 it was $161 billion.
Last September's credit crisis triggered emergency actions by government. The deficit swelled as government agencies, including Treasury, Federal Reserve and FDIC began spending a record amount of $7.2 trillion toward bailouts, capital investments and financial stabilization programs.
Not helping either was a drop in tax receipts that came as a result of the 1.5 million jobs lost in the first three months of the fiscal year. Treasury has collected $255 billion in individual income taxes thus far, down 6.7 percent from the $273 billion from the same period last year. Businesses paid only $50 billion in taxes, 45.5 percent less than the $92 billion paid to Treasury during the same time period last year. The federal deficit is projected to be $1.2 trillion and doesn't include the economic recovery package President-elect Barack Obama has ready to push through once sworn into office. The federal fiscal year begins Oct. 1.
Retail Sales Slump Longest in 40 Years
Confirming fears that the 2008 holiday sales season was one of the worst in decades, the Commerce Department says that retail sales fell for the sixth straight month in December. This makes it the longest consecutive stretch of monthly declines in the measure in at least 40 years.
The Commerce report says retail sales dropped 2.7 percent in December, compared with a revised 2.1 percent drop in November. Sales not including autos and auto parts fell much further than expected, down 3.1 percent. Analysts blame credit restraints, higher unemployment and consumers cutting down buying only the essentials as major factors for the continued stretch of declines.