WASHINGTON (By David Lawder) - Overall financial bailout costs look cheap compared to past crises, with the final net cost of U.S. Treasury rescue efforts likely under $25 billion, Treasury Secretary Timothy Geithner said on Thursday.
Geithner told bailout overseers that the Treasury expects to earn a profit on its remaining support for banks, automakers, credit markets and American International Group as part of the $700 billion Troubled Asset Relief Program, although it would likely lose money on its housing support programs.
The overall direct cost of all of the government's financial rescue efforts, including more than $150 billion to cover losses at mortgage finance giants Fannie Mae and Freddie Mac, will be less than 1 percent of U.S. gross domestic product, Geithner said.
"The overall costs will be incredibly small in comparison to almost any experience we can look at in the United States or around the world," he told the Congressional Oversight Panel.
Asked about a new Congressional Budget Office estimate that the TARP's net cost will be as low as $25 billion, Geithner said: "I suspect that number will be too high".
The expected cost of TARP -- just one component of U.S. crisis support worth trillions of dollars -- has declined dramatically.
The CBO initially expected the government to take a $350 billion hit on TARP. Treasury's most recent estimate was for about $30 billion, after all investments in AIG are sold.
The less-than 1 percent estimate for all government support compares to about 2.4 percent of GDP spent to deal with the savings and loan crisis of the 1980s and 90s, according to the Government Accountability Office.
Geithner's testimony came a day after the Treasury collected another $2.1 billion from its $49.5 billion bailout investment in General Motors Co and is preparing to begin selling shares in AIG next year.
NEW FINANCIAL RULES
His testimony also came amid a busy week for regulators in proposing new rules to enforce the Dodd-Frank financial reform law -- a byproduct of the financial crisis aimed at curbing risk-taking in the financial sector and protecting consumers.
Also on Thursday, the top U.S. futures regulator set out steps prevent speculators distorting markets in oil and other physical commodities, while the Federal Reserve was expected to propose lowering the fees that banks can make from debit card transactions.
On Tuesday, the Federal Deposit Insurance Corp proposed requiring that bank holding companies maintain minimum capital levels as strong as their deposit-taking units.
And the Securities and Exchange Commission on Wednesday asked for comment on rules that would required companies to declare the source of certain metals and ores, another Dodd-Frank measure, an effort to reduce the flow of money to armed rebels in the Democratic Republic of Congo.
Regulators must craft more than 200 rules before July 2011, including a new regulatory regime for the over-the-counter derivatives market.
Although the direct costs of the bailouts may be falling, the U.S. economy remains scarred by the crisis, with the unemployment rate near 10 percent and small businesses still having difficulty accessing credit.
"The true cost of this crisis to the economy, however -- the jobs, wealth and growth that it erased -- is much higher, but that damage would have been far worse without the government's emergency response," Geithner said.
He said the housing market also remains weak, and the Treasury is continuing to use mortgage finance giants Fannie Mae and Freddie Mac to apply downward pressure on rates.
Geithner also said he believes that there is a good economic case for Fannie and Freddie to participate in a Federal Housing Administration program for borrowers who owe more than their homes are worth.
(Reporting by David Lawder; Editing by Tim Dobbyn)
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