Geithner: Use Leftover Bailout Money To Cut Deficit

Enlarge Jose Luis Magana/AP

Treasury Secretary Timothy Geithner urged Congress to move quickly in overhauling the nation's financial rules, which he says is key to a healthy economy.

Jose Luis Magana/AP

Treasury Secretary Timothy Geithner urged Congress to move quickly in overhauling the nation's financial rules, which he says is key to a healthy economy.

Treasury Secretary Timothy Geithner dodged questions Thursday about when the government will end its $700 billion bailout program.

In testimony before the Joint Economic Committee, Geithner said he would not support a permanent extension of the program, but noted that some small businesses are still experiencing a credit crunch.

"We're winding it down and will close it as soon as we can," the Treasury secretary said, adding that he expects part of the money to be used to reduce the record $1.42 trillion deficit.

Geithner was on Capitol Hill to urge Congress to pass legislation overhauling the financial regulatory system. Noting that the gross domestic product grew 3.5 percent last quarter, he predicted the upward trend will continue into 2010 but warned that comprehensive reform is needed to ensure continued stability and prevent another meltdown.

"Unfortunately, the regulatory regime that failed so terribly leading up to the financial crisis is precisely the regulatory regime we have today," Geithner said. "That is why recovery alone is not enough. To ensure the vitality, the strength and the stability of our economy going forward, we must bring our system of financial regulation into the 21st century.

Geithner's remarks came as the House and the Senate are trying to overhaul the way financial firms are regulated in a way that creates opportunity, while reducing risk. The overhaul aims to strengthen protections for consumers, taxpayers and investors.

One proposal, recommended by Senate Banking Committee Chairman Christopher Dodd, would create a single banking regulator. The House Financial Services Committee is also working on its own plan to overhaul the system.

Both proposals face opposition from some sectors of the financial industry, casting doubt on how quickly Congress would be able to send a bill to the White House.

Geithner said the Obama administration wants to ensure that new legislation would:

* make it impossible for a financial firm to escape oversight;

* provide clear regulatory authority for the country's biggest institutions — by allowing for clear lines of single-point authority;

* ensure that the financial system can cope with failures — by focusing on quality capital;

* abandon the idea that no institution is too big to fail.

Although Geithner maintained that bailouts were necessary in the latest financial meltdown, he said such intervention should not set a precedent.

"No financial system can operate efficiently if financial institutions and investors assume that the government will protect them from the consequences of failure," he told lawmakers.

The Treasury Department has proposed that the Federal Reserve be given the power to oversee the biggest firms. In his testimony, Geithner indicated that he is opposed to a proposal by some lawmakers that would give authority to a council of existing regulators.

"The fact that investment banks like Bear Stearns or Lehman Brothers or other large firms like AIG could escape meaningful consolidated federal supervision simply by virtue of their legal form should be considered unthinkable from now on," Geithner said.