WASHINGTON—The Treasury Department formally extended the life of the controversial $700-billion bailout fund to October, saying it planned to sharply scale back use of the money, even as a government audit found the program lost $41.4 billion in the last fiscal year.
The Troubled Asset Relief Program had major losses through September on some of its highest-profile investments -- $30.4 billion on the bailout of American International Group and another $30.4 billion combined on investments in General Motors and Chrysler, according to a report released Wednesday by the Government Accountability Office.
Over the next 10 years, the administration estimates that TARP will lose about $141 billion. But that is about $200 billion less than projected in August, giving the administration the ability to spend more on new job-creation efforts without increasing the huge budget deficit.
In a letter Wednesday to congressional leaders, Treasury Secretary Timothy F. Geithner said the administration was extending the program to Oct. 3 because it wanted the continued flexibility provided by its mountain of money.
Under the law that created TARP, the program would end Dec. 31 unless the Obama administration formally requested an extension, which does not require congressional approval.
Geithner told House Speaker Nancy Pelosi (D- San Francisco) and Senate Majority Leader Harry Reid (D-Nev.) that the recovery of the financial system "remains incomplete" and that "near-term shocks to that system could undermine the economic recovery we have seen to date."
In a brief talk Wednesday morning, President Obama, pushing for job-creation legislation, said the administration was winding down TARP.
"This program has served its original purpose, and the cost has been much lower than we expected, giving us a chance to pay down the deficit faster than we thought at the time, and also allowing us to invest in job creation on Main Street rather than on Wall Street," he said.
The administration said it would not spend TARP money directly on the job-creation initiatives Obama outlined Tuesday.
The only use of the funds to stimulate jobs would be continuing Treasury Department efforts to spur lending by banks to small businesses.
Those efforts are one of the few areas where there might be new commitments of TARP money in 2010, Geithner said. The department already is using the program's funds to help ease home foreclosures, provide capital to community banks and increase spending on a program to improve the market for turning consumer and small-business loans into securities.
"Beyond these limited new commitments, we will not use remaining [TARP] funds unless necessary to respond to an immediate and substantial threat to the economy stemming from financial instability," Geithner wrote. "As a nation, we must maintain capacity to respond to such a threat."
He said the administration did not expect to use more than $550 billion from TARP before the program ends. Meantime, banks continue to pay back the money given to them. The Treasury Department said Wednesday that it had received Bank of America Corp.'s refund of $45 billion in bailout money, bringing the total repaid by financial institutions to $116 billion.
Republicans have called on Obama to let TARP expire at the end of this year. Rep. Jeb Hensarling (R- Texas), who sits on the special panel that was created by Congress to oversee TARP, protested Geithner's move today.
"The Obama administration just can't seem to let go of the $700 billion in 'walking-around money' taxpayers were forced to put on the line to bail out Wall Street last year," Hensarling said. "What was supposed to be an emergency capital injection to thaw frozen credit markets has morphed into a revolving bailout fund to advance the Democrats' political, social and economic agenda."
The Congressional Oversight Panel released a report Wednesday saying that TARP, along with other government programs, "can be credited with stopping an economic panic."
But the report said the programs' progress toward other goals, such as easing mortgage foreclosures, was still unclear.