By Emily Kaiser
WASHINGTON, Feb 12 (Reuters) - No matter how many times U.S. Treasury Secretary Timothy Geithner insisted this week that he was not asking for more money to fix the economy, the question kept coming back.
How much more will it cost to purge as much as $4 trillion in bad assets and recapitalize banks, bridge a recession that may generate a $1 trillion gap in output, and put a floor under the housing market that triggered the whole credit mess?
The slowly evolving bailout plan amounts to an effort to fill a hole before it's known exactly how deep it is, which is why many lawmakers and economists believe that is only a matter of time before Geithner will have to come back for more money.
"I just don't believe that that's enough money to fix housing and banking," South Carolina Republican Sen. Lindsey Graham told Geithner at a hearing on Wednesday. "I just wish you would say that, because you're going to come up here and ask us for more money."
"Let's tell people some idea of what awaits them," he said.
Geithner responded much the same way he had to the half-dozen or so other lawmakers who asked the same thing: "I'm not prepared to make that judgment today."
Part of the reason for Geithner's reluctance is that government officials are only now beginning a thorough examination of how bad off the banks really are. The stress tests, as Geithner calls them, should help Treasury figure out which banks are healthy enough to be repaired and which might require more drastic measures.
The International Monetary Fund and a number of private economists have come up with loss projections that far exceed the $500 billion to $1 trillion in bad assets that Geithner's public-private investment fund hopes to remove from bank's books.
"We expect that in the end, considerably more funds will be needed to make this work effectively in shoring up investor confidence in financial institutions," said Deutsche Bank economist Peter Hooper.
ANOTHER DAY, ANOTHER LOSS
The longer it takes the Treasury to get the bank fix program rolling, the more money that will likely be needed because loan losses will mount as the economy worsens.
Federal Reserve data shows that loan delinquencies increased dramatically in the first three quarters of 2008. The next batch of figures will probably look even worse because the economy nose-dived in the final quarter of the year.
At the 100 largest banks, nearly 5.5 percent of all residential real estate loans were delinquent as of September 2008, up from 2.8 percent a year earlier. Some 4.8 percent of commercial real estate loans were behind, compared with 1.9 percent in the third quarter of 2007.
Those numbers are no secret, and Geithner is certainly well aware that rising unemployment and falling home prices spell more losses for banks. So why not acknowledge that and ask for more money up front?
First and foremost is the obvious political problem of going back to the trough while voters are still furious over last year's $700 billion bailout and uncertain about the benefits of an $800 billion tax cut and spending program.
Steven Wieting, an economist with Citigroup, said the message from Geithner may also reflect a philosophical position that public money should be only a temporary measure until banks can once again get private funding.
"In essence, whatever losses need to be taken ultimately need to be taken by private capital, supplanting current capital if necessary," he said.
That thinking is part of the reason why bank stocks resumed their slide as soon as Geithner presented his plans on Tuesday.
Ever since Bear Stearns' near-death experience last March, there has been a perception on Wall Street that if bank shares fall far enough to spark serious questions about the firm's viability, the government can be forced to step in.
Wall Street has already made it clear that it doesn't like Geithner's proposal. Congress is braced for the next request for more money. Geithner isn't asking today, but he very well might ask soon. (Editing by Jonathan Oatis)