By Robert Schmidt and Rebecca Christie
June 4 (Bloomberg) — Herb Allison, the Obama administration’s nominee to run the $700 billion financial- rescue, said the “roughly” $100 billion left in the program should be reserved for any unforeseen problem that requires more government intervention.
“It’s important that we leave some headroom in this program, because we’re not yet out of this crisis,” Allison told the Senate Banking Committee in his confirmation hearing today. “The Treasury and the government need some flexibility so that if there’s a need in the future we can intervene in a timely manner on behalf of the American public.”
President Barack Obama nominated Allison to be assistant Treasury secretary for financial stability, a job that includes overseeing the Troubled Asset Relief Program. He has been working at the Treasury since May 1 as a counselor to Secretary Timothy Geithner.
In contrast to the harsh questioning some lawmakers gave Neel Kashkari, who vacated the TARP post in May, Allison drew praise today from members of both parties. Senate Banking Committee Chairman Christopher Dodd, a Democrat from Connecticut, called Allison “a great choice” and said he would seek a vote on the nomination as soon as possible.
“He has kind of an interesting resume in terms of background he brings to this job,” Dodd said. “He’s highly respected.”
Senator Bob Corker, a Republican from Tennessee, told Allison “you have stature and you have substance.” Senator Mark Warner, a Virginia Democrat, said in an interview with Bloomberg Television that he had “no doubt” Allison would be confirmed by the Senate.
Allison, the former chief executive officer of housing- finance company Fannie Mae, cautioned about overestimating the strength of the U.S. economic recovery. In his testimony, he cited some signs that credit markets are improving and other signals that show the financial system remains under stress.
“Housing prices are still falling, the commercial real- estate market is still under pressure, small businesses are still having some difficulty” accessing credit, he said. “There’s still a great deal of work to be done here, and I don’t think at this point we ought to become complacent.”
The Labor Department’s monthly payrolls report tomorrow may show employers cut more than 500,000 workers in May, according to the Bloomberg survey median, bringing total job losses since the recession began in December 2007 to 6.2 million. The deterioration in the job market is the worst of any downturn in the post-World War II era.
“I believe that this is still a very serious economic time for this country, that much still has to be done to restore stability,” he said, adding there may be “some bumps along the road.”
Since it was started last year, the TARP has spent billions of dollars on capital injections into banks, financing for the U.S. auto industry, funds to help homeowners refinance their mortgages and aid to prop up insurer American International Group Inc.
Allison he expects to see an increase soon in repayments from banks that received capital injections. “That’s quite likely that there will be a bump next week,” he said, when asked about the repayments in today’s hearing.
The Federal Reserve has said it will make an announcement on the “initial set” of redemption approvals during the week of June 8.
Allison declined to estimate the amount of the payback approvals. He also declined to offer details on how the government will manage the shares it holds in companies participating in the TARP program.
“The government has no desire to be a day-to-day manager of those companies,” Allison said. “It will be a shareholder and its policies on governance as a shareholder will be made public soon.”
The Treasury also soon will announce details of its policy on how to handle warrants it received from TARP recipients, he said.
Allison pledged to deploy the rescue program’s money “wisely” in an effort to restore stability to markets and companies.
“Openness will be a guiding principle of this office and will help ensure that we remain focused on putting these taxpayer dollars to their highest and best use — rebuilding the American economy,” he said in his testimony.
The main goal of TARP is “to restore liquidity and stability to the financial system of the United States,” Allison said. TARP is designed to help companies not just recover from the downturn, but “enable them to compete successfully in the new economy,” he said.
Former Treasury Secretary Henry Paulson chose Allison to run Fannie Mae last September after the housing-finance company was put into a government conservatorship.
“Today, although still burdened by credit losses on loans made during the housing bubble, Fannie Mae is performing well on behalf of the American people,” Allison said. “While much remains to be done, we have laid the groundwork for success.”
To contact the reporters on this story: Robert Schmidt in Washington at firstname.lastname@example.org Rebecca Christie in Washington at Rchristie4@bloomberg.net.