BUSINESS
03/18/2010 05:12 am ET Updated May 25, 2011

Geithner: $700B Bailout Program Will End Soon, Derivatives Allowed Banks To 'Write Their Own Rules' (VIDEO)

WASHINGTON (MARCY GORDON - AP) -- Treasury Secretary Timothy Geithner is affirming the administration's intent to soon end the $700 billion financial bailout program.

Geithner did not provide details, but says the government is close to the point at which "we can wind down this program" and end it.

"Nothing would make me happier," he told the Senate Agriculture Committee.

Some lawmakers have been agitating for an exit from the politically unpopular bailout program that was put in at the height of the financial crisis last year.

Geithner also says legislation to bring transparency to the global, unregulated $600 trillion derivatives market was needed soon to restore confidence in the U.S. financial system.

Geithner also said Wednesday that legislation to bring transparency to the global, unregulated $600 trillion derivatives market is needed to restore confidence in the U.S. financial system.

(Watch an excerpt of Geithner's testimony below:)

A major sticking point in Congress involves companies that use derivatives to hedge against risk. Some lawmakers want to exempt the so-called "end users" from new requirements in the overhaul legislation.

But Geithner said he's pleased by "the convergence on good policy" that has occurred in crafting legislation to impose new oversight on complex instruments blamed for hastening the financial crisis.

"There is a growing strong consensus about the nature and scope of reforms necessary to make our derivatives markets more transparent, more efficient, more fair and more stable," he said in testimony prepared for the Senate Agriculture Committee. "This is an enormously complex project. It is important that we get it right. And it is critical that we finish the job."

The value of derivatives hinges on an underlying investment or commodity -- such as currency rates, oil futures or interest rates. The derivative is designed to reduce the risk of loss from the underlying asset.

Credit default swaps, a form of insurance against loan defaults, account for an estimated $60 trillion of the worldwide derivatives market. The collapse of the swaps brought the downfall of Wall Street banking house Lehman Brothers Holdings Inc. and nearly toppled American International Group Inc. last year at the height of the crisis, spurring the government to support the insurance conglomerate with about $180 billion in aid.

The Obama administration's proposal is close to legislation in the House, requiring most derivatives trades to go through clearinghouses to bring transparency, and subjecting financial firms dealing in the instruments to new capital requirements.

Geithner said that regulating derivatives would reduce risk to the financial system and help companies that rely on the instruments save money.

All derivatives contracts that are "liquid and standardized" -- backed with cash and not designed for specific users in a transaction -- should go through well regulated clearinghouses, he said. There should be a presumption that a contract accepted for clearing by one of the houses and approved by the Commodity Futures Trading Commission or the Securities and Exchange Commission must be centrally cleared.

A potent coalition of about 170 end user companies -- including Boeing Co., Caterpillar Inc., Ford Motor Co., General Electric Co. and Shell Oil Co. -- has been lobbying Congress with the message that regulation of derivatives without exceptions could severely increase costs for corporate America. That could mean higher costs passed on to consumers and imperiled jobs, they contend.

Several senators on the Agriculture Committee have expressed support for that view. But CFTC Chairman Gary Gensler has said that if Congress decides to exempt some end-user transactions, the exception should be "explicit and narrow."