WASHINGTON – The head of the government's $700 billion financial rescue program told Congress Thursday that the Bush administration has made "tremendous progress" in pushing to get it implemented.
Neel Kashkari, a Treasury Department official who is interim head of the program, told the Senate Banking Committee in prepared testimony that since last week's announcement that the government would spend $250 billion to buy bank stocks to bolster capital reserves, there has been "numerous signs of improvement in our markets and in the confidence in our financial institutions."
Separately, former Federal Reserve Chairman Alan Greenspan told another congressional panel that the current global financial crisis is a "once in a century credit tsunami" that policymakers did not anticipate.
Although some critics have blamed Greenspan for contributing to the current crisis by leaving interest rates too low for too long, he put the blame on soaring mortgage foreclosures on overeager investors who did not properly take into account the threats that would be posed once home prices stopped surging upward.
Greenspan was the leadoff witness before the House Government Oversight and Reform Committee, a hearing that lawmakers called to question past key financial players about what they felt caused the most grave financial crisis since the 1930s. The witnesses were also expected to be asked how they thought the government would deliver the nation from the economic turmoil.
Committee Chairman Henry Waxman, D-Calif., suggested that Greenspan contributed to "irresponsible lending practices" by rejecting appeals that the Fed intervene to regulate a surging subprime mortgage industry.
"The list of regulatory mistakes and misjudgments is long," Waxman said of oversight by the Fed and other federal regulators.
The financial crisis was the subject of simultaneous hearings in both the House and the Senate, where most lawmakers are in the middle of their Election Year break.
Kashkari, in his Senate testimony, cautioned that "while there have been recent positive developments, the markets remain fragile."
Another witness before the Senate panel, Sheila Bair, head of the Federal Deposit Insurance Corp., said the government can use its new authority from Congress to directly help struggling homeowners to overhaul mortgages by giving banks an incentive to modify the loans.
Bair has been urging that the government do more to help tens of thousands of home borrowers avert foreclosure. She suggested in prepared testimony that could be done by having the government set standards for modifying mortgages into more affordable loans and providing loan guarantees to banks and other mortgage services that meet them.
The federal regulators — past and present — testified as the Bush administration weighed how to carry out a provision of the $700 billion bailout passed by Congress earlier this month to help financially strapped homeowners renegotiate more affordable loans and avoid foreclosure.
The new law includes several provisions to encourage mortgage revisions for homeowners in difficulty, Bair noted in her testimony. They give the Treasury Department authority to use loan guarantees and credit enhancements to promote modifications of mortgages to make them more affordable.
"Loan guarantees could be used as an incentive for servicers to modify loans," Bair said in her prepared testimony. "By doing so, unaffordable loans could be converted into loans that are sustainable over the long term."
The FDIC is working "closely and creatively" with the Treasury Department on such a plan, she said.