Geithner says some bailout funds to help lower deficit

WASHINGTON — Treasury Secretary Timothy Geithner said Thursday the government’s $700 billion bailout program will end “as soon as we can,“ and that part of it will be used to lower the record deficit.

During a Joint Economic Committee hearing, Geithner was pressed to disclose the administration’s plan for dealing with the unpopular financial rescue program. He did not say how much of the bailout would go toward paying down the deficit, which hit an all-time high of $1.42 trillion for the budget year that ended Sept. 30 and is expected to rise even higher this year.

“We are winding it down and will close it as soon as we can,“ he said.

Geithner was on Capitol Hill pushing Congress to move quickly in overhauling the nation’s badly flawed financial rules, which he says is essential for the health of the economy.

Both the House and Senate are making progress toward revamping the current regulations, but Geithner said a rapid conclusion is needed to keep the economic recovery on track.

“To ensure the vitality, the strength and the stability of our economy going forward, we must bring our system of financial regulation into the 21st century,“ Geithner testified.

The House Financial Services Committee and the Senate Banking Committee are working on their own versions of sweeping overhaul plans, but the two panels are taking sharply divergent approaches in some areas.

Both proposals also face sharp opposition from major sectors in the financial industry, casting doubt on how quickly Congress will be able to reach agreement and send a finished bill to the White House.

Geithner said the administration wants to ensure that firms not be able to escape or avoid oversight by shopping for the most lenient regulator, a situation critics say contributed to the worst financial market crisis in seven decades.

“The fact that investment banks like Bear Stearns or Lehman Brothers or other large firms like AIG could escape meaningful consolidated federal supervision simply by virtue of their legal form should be considered unthinkable from now on,“ Geithner said.

Another item the administration wants to see approved by Congress is to make sure the financial system as a whole is more capable of absorbing shocks and coping with failures. Geithner said this will require putting a greater focus on the quality of capital that firms are allowed to hold.

Capital reserves are the cushion financial firms carry to absorb loses.