On Capitol Hill, Geithner Defends Policies

Treasury Secretary Timothy Geithner defended Thursday the administration's handling of the financial crisis, as he again urged Congress to pass a regulatory overhaul that has been months in the making. Geithner faced tough questioning on the bailout of insurance giant AIG and Wall Street bonuses. Republican Congressman Kevin Brady even demanded Geithner's resignation.

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MELISSA BLOCK, Host:

From NPR News, this is ALL THINGS CONSIDERED. I'm Melissa Block.

ROBERT SIEGEL, Host:

And I'm Robert Siegel.

Treasury Secretary Timothy Geithner urged Congress today to pass financial regulatory reforms. But lawmakers were more interested in pressing the Treasury secretary on the status of the multibillion-dollar bailout. They expressed frustration with Geithner, and one Republican congressman even called for him to resign.

As NPR's John Ydstie reports, Geithner gave as good as he got.

JOHN YDSTIE: The hearing before the Joint Economic Committee was billed as a status report on financial reform legislation, but there wasn't much attention to that topic. Early in the hearing, Republican Congressman Kevin Brady of Texas recited a litany of the country's economic woes, which he blamed on the Obama administration. Then Brady did something rarely done in congressional hearings. He asked Geithner to step down.

BLOCK: The public has lost all confidence in your ability to do the job.

BLOCK: If you look at any measure of confidence in the financial system, it is substantially stronger today than when the president of the United States took office.

BLOCK: At some point...

U: Gentlemen, time has expired. (unintelligible) for five minutes.

BLOCK: ...you have to take responsibility for your decisions.

BLOCK: I take responsibility for anything I am part of doing. I'd be happy to do that. What I can't take responsibility is for the legacy of crisis you've bequeathed this country.

BLOCK: This is your budget. This is your bailout. This is your stimulus. This is your act.

BLOCK: I take full responsibility for those with great honor and pleasure.

U: Gentlemen, time has expired.

YDSTIE: Another Texas Republican, Michael Burgess, stopped short of asking for Geithner's resignation, but he told the secretary he regretted that Geithner had gotten his job in the first place. And Burgess went on to urge Geithner to shut down the controversial $700 billion TARP rescue program, which the Obama administration inherited from the Bush White House.

SIEGEL: No one believes right now that TARP is doing the job that it was set out to do.

BLOCK: I'm completely supportive of the basic proposition that we need to bring this program to an end as quickly as we can.

YDSTIE: But the Treasury secretary warned that shouldn't be done too soon. He said one of the big mistakes the U.S. made during the Great Depression and the Japanese made during the 1990s was removing emergency measures before recovery was well-established. In fact, during the hearing, Senator Amy Klobuchar, a Democrat from Minnesota suggested the administration use $40 billion of the remaining TARP funds to get community banks to lend to small businesses that are starving for credit. The White House is considering that idea. But Geithner said one hurdle is that banks are afraid they'll look weak if they participate.

BLOCK: They are exceptionally reluctant, because they feel that it's stigmatizing to come, and they feel that...

BLOCK: Do you have to call it TARP if you give them this money?

BLOCK: I would call it - like to call it anything but TARP.

(SOUNDBITE OF LAUGHTER)

BLOCK: And that would help.

YDSTIE: On the issue of China's undervalued currency, Secretary Geithner took some heat from Democrats, including Senator Charles Schumer of New York.

BLOCK: Chinese currency manipulation was one of the major causes of the global economic downturn. Today, there are certainly hundreds of thousands and maybe even more Americans who are out of work because the Chinese are unfair and manipulate their currency.

YDSTIE: President Obama's trip to China this week didn't appear to make any progress on the issue, though the Chinese have suggested in recent months that they will end their currency manipulation in the future. Geithner would not be pinned down on when that might happen, but he was optimistic.

BLOCK: My own sense is it's not going to actually take that much time.

YDSTIE: Geithner was also pointedly asked by lawmakers why the government had spent tens of billions of dollars paying off AIG creditors like Goldman Sachs in full, when some creditors had been willing to take less. Geithner said not all creditors were willing to do that and legally there was no middle road, so the government was forced to pay all of AIG's creditors in full to avoid a catastrophic failure.

After his grilling on the Hill, the White House issued a statement praising Secretary Geithner's role in rescuing the U.S. economy.

John Ydstie, NPR News, Washington.

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Geithner: Use Leftover Bailout Money To Cut Deficit

Treasury Secretary Timothy Geithner testifies Thursday before the Joint Economic Committee. i i

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 hide caption

itoggle caption Jose Luis Magana/AP
Treasury Secretary Timothy Geithner testifies Thursday before the Joint Economic Committee.

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 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.

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