WASHINGTON — America's banks are still broken despite all their bailout billions, Treasury Secretary Timothy Geithner told impatient rescue overseers Tuesday as they pressed him on when things will get better and how much it will cost.
How well is the mostly spent $700 billion federal bailout working? "To date, frankly, the evidence is mixed," Geithner told a congressionally appointed oversight panel.
Confidence in the program is wearing thin on Capitol Hill. Even bailout supporters are skeptical that Congress — weary of bankers' bonuses and still-scarce credit — would approve additional bank rescue money if requested.
Wall Street was cheered by Geithner's assessment that "the vast majority" of banks could be considered well capitalized. Bank stocks had slid on Monday but bounced back on Tuesday.
Still, the government's effort to stabilize the financial sector and unclog credit markets has come under heavy scrutiny. Officials must do a better job in carrying out and explaining its efforts to shore up the financial system, the head of the oversight panel told Geithner.
"The sense of fear and uncertainty has not gone away, but it's been joined by a new sense of anger and frustration," said Elizabeth Warren, who is also a Harvard University law professor. "People are angry that, even if they have consistently paid their bills on time and never missed a payment, their TARP-assisted banks are unilaterally raising their interest rates or slashing their credit lines."
Of the $700 billion authorized by Congress for the Troubled Asset Relief Program in October, about $110 billion is left, Geithner said. With about $25 billion expected to be repaid this year, the total available is about $135 billion.
Some banks are maneuvering to pay back some of the bailout money, unhappy with the strings attached. But Geithner said that doesn't mean the government would necessarily accept the repayments.
The treasury secretary said that while most banks have more than enough capital to satisfy federal regulators, a combination of factors — including worries about the broader economy and the crushing weight on their balance sheets of bad loans and other toxic securities — was feeding "uncertainty about the health of individual banks."
That, in turn, "has sharply reduced lending across the financial system" and was holding back economic recovery, Geithner said.
Geithner was asked by Rep. Jeb Hensarling of Texas, one of two Republicans on the five-member panel, "What is the exit strategy from AIG?"
The treasury secretary could not provide an answer, saying that "very difficult judgments" were involved and that the government still lacked the express authority to fully manage the company, even though roughly $180 billion in taxpayer support has been pledged to the giant insurer, and the government effectively owns 80 percent of the company stock.
Geithner insisted steps taken by the administration were helping to cushion the economic pain from what he called a continuing "very severe financial crisis, the worst in generations."
Meanwhile, Nobel Prize-winning economist Joseph Stiglitz said stricter rules on the use of bailout money are needed, as well as a signal that there is no more money in the pipeline.
"I think it is imperative that Congress narrow the breadth of this new corporate welfare state," he told the Joint Economic Committee at a separate hearing. "It is people that we should be protecting, not corporations."