Geithner testifies to Congress, economy has weathered the storm
September 10, 2009 by admin
Today, the Secretary of Treasury, Timothy Geithner testified in front of Congress addressing the state of the U.S. economy and banking system. The testimony comes one full year after the collapse of Lehman Brothers, which is credited as the event the pushed the financial industry into a credit crisis and caused one of the largest financial meltdown in the past fifty years. The testimony highlighted key areas of the economy, including the banking system, state of the credit markets, housing market and labor markets.
This week has provided further evidence that the economy is slowly growing its way out of the recession. The Fed’s beige book report released earlier in the week highlighted the many growth accomplishments within the economy over the past three months. Today, the weekly jobs report showed a slight improvement in job losses.
The testimony today was well received by the stock market and helped push the opportunity to extend gains for the month of September for the third day in a row. The banking and credit markets were a major focus of the questions from Congress. The larger concern over the amount of small to medium sized banks that appear to be undercapitalized and likely could fall into receivership is not a major concern for the government according to testimony today. Secretary Geithner reported that the market share for nine thousand of the smallest banks, was less than thirty five percent and he believed the FDIC would be adequately capitalized to cover any potential future losses. The health of the banking market, with improved capital across the industry has helped to mitigate the risk of loss and collapse to the banking industry. There will still be banking losses in the future, but the largest banks appear to be in much better shape.
One of the areas of testimony that represents the countries advancement over the last twelve months is the stabilization of the secondary markets and the reduction of entities that are relying on the government for financing. The pairing down of government subsidizes to the private sector helps to reduce the government’s debt load and provide capital for other programs. The secondary market has improved, excluding the mortgage market has begun to function at levels last seen in early 2008. The mortgage industry appears to be an obstacle for financing alternatives that are not influenced by government agencies. The mortgage industry is still relying solely on Fannie Mae, Freddie Mac and HUD through FHA loans to provide secondary financing for mortgage products. The lack of financing in the secondary marketplace has yet to significantly impact the consumer mortgage market (excluding the jumbo loan market) as consumers have benefitted from historically low mortgage rates to refinance their homes or purchase new homes and help stabilize the housing market.
Testimony today covered a number of areas that will be closely followed for the balance of the year and into 2010. Numerous members of Congress remain concerned that the home loan modification program, put forward by the government (Making Home Affordable) was having little impact on curbing the rate of home foreclosures. This challenge could hang over the economy for the next few years without an improvement by loan servicers to commit to helping more home owners. The housing market and labor market remained the two areas of the economy most likely to be challenged over the next twelve months.