Geithner, Bernanke work on $700B bailout overhaul

Geithner, Bernanke work on $700B bailout overhaul

Treasury Secretary Timothy Geithner, leaves the White House after a meeting with President Barack Obama and Vice President Joe Biden Thursday, Jan. 29, 2009, in Washington

WASHINGTON (AP) -- Treasury Secretary Timothy Geithner met with top government officials Friday to refine the administration's plan for overhauling the $700 billion bailout program and improve regulation of the financial system.

The administration is working on proposals for how it will use the last $350 billion from the rescue program. But the measures being considered could end up costing taxpayers hundreds of billions of dollars beyond the original $700 billion.

Geithner previously said the administration is weighing the possibility of using a bad bank to buy up toxic assets that are weighing on the books of financial institutions.

However, some suggested Friday that the administration may be re-examining that idea because of the costs of such an approach.

Sen. Charles Schumer, D-N.Y., said the issue of how much more money to ask Congress to commit beyond the current $700 billion is a key item the administration is debating.

"Do you guarantee the bad assets or do you buy them? Do you guarantee all the bad assets or just the housing assets? There are a lot of unanswered questions," Schumer said.

Geithner met throughout the day with senior Treasury Department officials and had a meeting scheduled with Federal Reserve Chairman Ben Bernanke, Federal Deposit Insurance Corp. Chairman Sheila Bair and John Dugan, the head of the Office of the Comptroller of the Currency. The OCC regulates the country's biggest banks.

Meanwhile, congressional auditors released a new report saying it may never be known whether the initial $700 billion plan accomplished its objectives because it will be difficult to separate the impact of the rescue program from the effects of other economic forces.

The Government Accountability Office said the Treasury Department had made progress in implementing about half of the nine reforms it suggested in an earlier report, including improving communication about the bailout and hiring more staff to run it.

But the department had not fully addressed eight of the recommendations, according to the GAO. "The lack of a clearly articulated vision has complicated Treasury's ability to effectively communicate to Congress, the financial markets, and the public on the benefits of TARP," the report said.

Geithner said earlier this week that the administration would announce its new proposals "relatively soon." Many expect decisions as early as next week.

The administration is trying boost confidence that it can get control of the worst financial crisis to hit the country since the 1930s. However, former Treasury Secretary Henry Paulson quickly committed the first $350 billion from the bailout program in an effort that so far has not yielded the expected results of stabilizing the situation and getting banks to resume more normal lending to consumers and businesses.

The bailout program has generated a huge amount of controversy. Critics charge that the Bush administration failed to impose enough restrictions on banks to make sure the billions they were receiving went to boost lending.

President Barack Obama on Thursday called it "shameful" and the "height of irresponsibility" that Wall Street had paid out $18.4 billion in bonuses last year.

The Treasury statement on Friday said that Geithner, who was sworn into office Monday night after being confirmed by the Senate, had spent part of this week in telephone conversations with the finance ministers of France, Germany and Australia on the joint efforts that will be needed to stabilize the global economy and restore growth.

Treasury said the discussions with French Finance Minister Christine Lagarde involved a review of France's proposals to overhaul the global financial architecture and the progress being made by the Group of 20 major industrial and developing countries.

Those talks are in preparation for a G-20 leaders' meeting in April that will be a follow-up to an initial summit chaired by former President George W. Bush in November.