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Geithner Pledges Forceful Attack On Banking Crisis

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Geithner Pledges Forceful Attack On Banking Crisis

Economy

Geithner Pledges Forceful Attack On Banking Crisis

Geithner Pledges Forceful Attack On Banking Crisis

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Treasury Secretary Tim Geithner explained this morning how $350 billion will facilitate banks to start lending again. Some members of Congress are concerned that the first $350 billion of the Troubled Asset Relief Program money did not actually help banks loosen credit.

MADELEINE BRAND, host:

From the studios of NPR West, this is Day to Day. I'm Madeleine Brand. Coming up, what we can learn from the Japanese; Japan had its lost decade, then the government spent billions. What happened what the United States should do differently; that's coming up. But first, TARP, Part II. Today, Treasury Secretary Timothy Geithner revealed how the government plans to spend the second half of the Wall Street bailout money, $350 billion. The first half did not accomplish what its backers had hoped. The credit markets are still not functioning as they should. The problem, of course, is that many banks have these so-called toxic assets on their balance sheets. Those are giant portfolios of mortgages and other things that may now be worth just 10 or 20 percent of their face value. Banks on the edge of insolvency, well, they can't make a lot of new loans. So, the Obama administration has now come out with a multipronged plan to try to fix those things. And joining us to look at them is NPR economics correspondent Adam Davidson. Adam, first of all, what did you think of Tim Geithner's speech?

ADAM DAVIDSON: Honestly, Madeleine, I feel like I'm stepping out of the objective reporter role here and saying, my God, I just loved the speech.

(Soundbite of laughter)

DAVIDSON: I mean, it's, like, for the first time in this whole crisis, we have a government official who speaks in clear, plain English, who takes responsibility, who says that bad people did bad things, but also that the whole system had huge problems. It was, as a piece of theater - just a piece of, you know, just - you know, the moment in the "West Wing" or the moment in the movie where finally they get it - it was really successful. We can talk about the plan itself, and there's lots of issues there and problems there, but just as a thing to watch on the TV, I thought it was great. I think we have a clip from it.

(Soundbite of congressional testimony, February 10, 2009)

Secretary TIMOTHY GEITHNER (U.S. Department of the Treasury, Barack Obama Administration): When the crisis began, governments were slow to act. And as the crisis intensified and more dramatic government action was required, the emergency actions that were meant to reassure, to provide confidence, too often added to public anxiety and to investor uncertainty.

BRAND: OK. So, that's pretty forceful, Adam, and I guess he wasn't very kind to bankers either, and let's hear that.

Sec. GEITHNER: Investors and banks took risks they did not understand. The rewards that went to financial executives departed from any realistic appreciation of risk. There were systematic failures in the checks and balances in our system. Our financial system operated with large gaps in meaningful oversight and without sufficient constraints to limit risk.

DAVIDSON: So - now, I want to step back into that objective reporter's role here...

BRAND: Yeah.

DAVIDSON: And say that he is in, this speech, I think, playing a very interesting rhetorical game, which is he is very forceful, saying the government messed up really badly, individual bankers messed up really badly, investors messed up really badly, and he's very attacking of them, I mean, saying, you know, this is really, really bad what they did, and it sort of feels like he's about to really beat up the banks and impose the kind of restrictions that a lot of people in Congress, a lot of others, want, that, you know, a lot of this big executives won't get paid so much, that they'll be fired, that banking - bank investors will lose their money. That's not what he's doing. He's not doing that tough stuff. He's talking tough, but he's not acting tough. And you have to really dig into the plan to realize that.

BRAND: Why is that? Because, as you said, there's so much anger out there against the banks and so much anger in there, probably in the administration, right, against the banks?

DAVIDSON: Yeah. And I'm sure he's furious at some of the excesses we've been hearing about, no question. But let me explain what I think or what we think he is thinking, which is that the banking system as a whole is in severe crisis, that the banking system as a whole is a necessary part, a vital, vital part, of keeping the American economy, the world economy, afloat. I'm sure that he and many others would love to punish bankers. That certainly would be very popular right now. That would get a lot of public attention and a lot of people happy. Frankly, there's a lot of me that would like to see that, but you have to also put on a rational mind and recognize that right now, I mean, literally, this week, next week, the next month, is a crucial time in U.S. economic history, and their attention is focused elsewhere. It's focused on keeping the system afloat, and I think he sees that punishing of the banks as a distraction that can come later.

BRAND: OK. We just have a few seconds, so tell us what's in this plan.

DAVIDSON: We don't know a lot of details. More will come out later. There is a public/private partnership to buy those toxic assets. There's going to be details coming out later about how they're planning to help homeowners and also how they're going to help all of us get loans. There's something like $1 trillion in money to help consumer loans in general, which should, hopefully, benefit all of us over the coming year.

BRAND: OK. Thanks, Adam. That's Adam Davidson. He's part of NPR's Planet Money team. There's lots more about the economic crisis at our Planet Money podcast and blog, npr.org/money.

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Administration Outlines Bailout Spending Plan

Treasury Secretary Timothy Geithner on Tuesday unveiled the Obama administration's second front in its battle for economic recovery — a plan aimed at soaking up $500 billion in toxic loans to jump-start stalled bank lending.

In an announcement, Geithner said the plan was designed to raise private funds, as well as use government money, to encourage investors to buy the assets. The action is a departure from the Bush administration's initial response to the financial meltdown, which Geithner praised while saying that it did not go far enough and suffered from a lack of transparency.

Americans "have lost faith in the leaders of some of our financial institutions," he said, while they are "skeptical that their government has used taxpayers' money in ways that will benefit them."

The White House under both Presidents Bush and Obama has come under fire for failing to provide a detailed accounting of how previous installments of the TARP money have been spent.

"This has to change. To get credit flowing again, to restore confidence in our markets and to restore the faith of the American people, we are going to fundamentally reshape our program to repair the financial system," Geithner said.

The plan represented one of "two fronts" — along with the more than $800 billion stimulus plan — in the "battle for economic recovery," he said.

The Treasury Department's strategy draws on the second installment of the $700 billion financial rescue package known as the Troubled Asset Relief Program, which was passed by Congress in the waning days of the Bush administration.

It will support $1 trillion in new lending through an expanded Federal Reserve program, he said.

"Unless we restore credit, the recession will be even longer and deeper," Geithner warned.

At least $50 billion would be set aside to help homeowners deal with rising foreclosures, he said. Details on the housing measures were postponed for an announcement expected in the next two weeks.

The Treasury secretary outlined a multitiered plan to increase transparency by publishing information on the Internet that would let Americans see "whether boards of directors are being responsible with the taxpayer dollars and how they are compensating their executives."

The program would provide public funds to banks as a short-term "bridge to private capital," he said.

"The capital will come with conditions to help ensure that every dollar of taxpayer assistance is being used to generate a level of lending greater than what would have been possible in the absence of government support," he emphasized.

At a White House news conference Monday night, Obama depicted the bank bailout effort as a template for "restoring market confidence."

"The credit crisis is real, and it's not over," Obama said.

He also did not rule out seeking additional TARP funding. "We don't know yet if we'll need additional money, or how much additional money we'll need," Obama said.

The Geithner announcement came on the same day the Senate passed the stimulus plan. Obama has lobbied hard for the measure, saying delay would lead to catastrophe. The House and Senate must now work out differences between their differing versions of the bill.

Also on Tuesday, Federal Reserve Chairman Ben Bernanke told Congress that the flurry of programs to unclog the credit markets were beginning to work.

"Our lending to financial institutions, together with action taken by other agencies, has helped to relax the severe liquidity strains," he told the House Financial Services Committee.

With material from The Associated Press

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