Treasury Nominee Geithner Faces Senate Panel

The Senate Finance Committee is expected to hear from Timothy Geithner Wednesday. He's President Obama's choice to be Treasury secretary. Geithner will have to explain how he missed paying $34,000 in payroll taxes when he was working at the International Monetary Fund. David Wessel of The Wall Street Journal talks with Steve Inskeep about what else might come up at the hearing.

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STEVE INSKEEP, host:

Back in the U.S., the Senate Finance Committee is holding a confirmation hearing this morning for Timothy Geithner. He's President Obama's nominee for Treasury secretary. The hearing was delayed because of taxes that Geithner didn't pay years ago. To talk about what else might come up in today's hearing, we've called David Wessel. He's economics editor of the Wall Street Journal and a regular guest on this program. David, good morning.

Mr. DAVID WESSEL (Economics Editor, Wall Street Journal): Good morning, Steve.

INSKEEP: I want to ask about something that could easily be more controversial than Geithner's taxes. He was president of the New York Federal Reserve Bank, which means he's been in the middle of this financial bailout, which has been much criticized.

Mr. WESSEL: That's right. And so his challenge this morning is to defend what he has done and what the Fed has done, including saving Bear Stearns, the big investment bank, and letting another big investment bank, Lehman Brothers, collapse, while trying to re-brand, if you will, the bank bailout that he and Fed Chairman Bernanke and Treasury Secretary Paulson engineered at a time when it doesn't seem to be working very well. So I suspect he'll defend what they did, but suggest a new direction going forward, particularly on the banks.

INSKEEP: I think it was just a few weeks ago, late last year, that Paulson, on our air, said, hey, we've stabilized the banking system. And here we have this plunge in the Dow just yesterday because of worries that the banking system is not stabilized. Is Geithner going to give any clues as to what the new administration is going to do about that?

Mr. WESSEL: Well, if he's asked about it, and I suspect the senators will ask about it, he will probably outline the principles that they're going to follow in rethinking what to do about the banks. The banks are in worse shape than had been anticipated. There's a lot of talk about putting more government money into the banks. One of his challenges is to say that the government will do whatever necessary to protect the financial system without scaring away anybody who might be thinking of investing in banks for fear of being wiped out.

INSKEEP: Oh, I suppose if you're talking about nationalizing banks, people might run from them.

Mr. WESSEL: Exactly. Not depositors, of course, but potential investors.

INSKEEP: Wow. Now, is Geithner going to try to deliver a message about spending and tax cuts and let's dare - do we even dare mention the deficit today?

Mr. WESSEL: He certainly will make a point, I predict, that it's important for Congress to move swiftly on President Obama's stimulus package of spending increases and tax cuts, pointing to how weak the economy is and how urgent it is to get on with this. And he will - as both the president has and Larry Summers, his economic adviser, have emphasized that while we're spending a lot of money now and cutting a lot of taxes now, we do have to prepare for going in the opposite direction to assure people that in the long run, the U.S. government can deal with its deficit. So that's another one of these balancing acts he's going to have to do today.

INSKEEP: OK. So, huge issues will have to be addressed here. But also, no doubt, questions about Mr. Geithner's taxes. What does he say?

Mr. WESSEL: It'll be interesting to see whether they bring that up or not, as there's been a lot of attention to the fact that he didn't pay all the taxes he was supposed to when he was working for the International Monetary Fund. The one thing that seems clear, though, is that this is not going to derail his nomination. Even Republican senators who have been a little critical of his behavior on taxes seem to think that, as one Washington Post columnist put it, this nomination is too big to fail.

(Soundbite of laughter)

INSKEEP: In other words, the issues are too huge here to go into his past and go after every little thing, that's what you're saying.

Mr. WESSEL: I think that they're going to try and score political points, but in the end it seems like such an urgent situation to have a Treasury secretary in place that it looks like they will, you know, beat him up a little bit and then approve him so that he can get to work trying to save this financial system from collapse.

INSKEEP: David, always good to talk with you.

Mr. WESSEL: A pleasure.

INSKEEP: David Wessel is economics editor of the Wall Street Journal.

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Senate Seen Approving Geithner After Tax Apology

Timothy Geithner testifies Wednesday before the Senate Finance Committee on his nomination. i i

Timothy Geithner testifies Wednesday before the Senate Finance Committee on his nomination to be Treasury secretary. Mandel Ngan/AFP/Getty Images hide caption

itoggle caption Mandel Ngan/AFP/Getty Images
Timothy Geithner testifies Wednesday before the Senate Finance Committee on his nomination.

Timothy Geithner testifies Wednesday before the Senate Finance Committee on his nomination to be Treasury secretary.

Mandel Ngan/AFP/Getty Images

It's Your Recession.

We're just blogging it . . .

The Senate Finance Committee is expected to approve Timothy Geithner to be Treasury secretary after he apologized to the panel Wednesday for failing to pay tens of thousands of dollars in taxes. Geithner is considered crucial to the new Obama administration in dealing with the global financial crisis and tight credit conditions that have choked the economy.

Despite sometimes intense interrogation from senators of both parties, Geithner is expected to win the committee's backing when it meets Thursday and be confirmed by the full Senate next week.

Geithner said his mistakes were careless and avoidable but "completely unintentional." He apologized to the committee and said, "I should have been more careful."

Geithner told the panel that the new administration must address a "catastrophic loss of trust and confidence in the global financial crisis" and get credit flowing again.

He acknowledged growing unhappiness in Congress and among taxpayers over how the $700 billion financial bailout money has been spent thus far by the outgoing Bush administration.

Geithner said that Obama and he believe the bailout program needs serious reform. "Our test is to act with the strength, speed and care necessary to get our economy back on track," he said.

The nominee, currently president of the New York Federal Reserve Bank, also addressed recent controversy over his failure to pay taxes over several years.

Geithner's confirmation came into doubt after the disclosure last week that he did not pay tens of thousands of dollars in taxes for Social Security and Medicare while he was employed by the International Monetary Fund. In addition, he employed a housekeeper who lacked proper documents for the last three months of her employment.

In different economic times, Geithner's confirmation might have been derailed by the news that he only recently paid more than $48,000 in delinquent taxes and interest for his earnings while working at the IMF.

Geithner paid some of the taxes in 2006 after an IRS audit discovered the discrepancy for the years 2003 and 2004.

The Senate Finance Committee hearing on Geithner's nomination scheduled for last week was postponed until Wednesday after some senators demanded more time to consider the controversy.

But with the economy so fragile, and with Geithner's strong qualifications and domestic and international profile, most senators chose to address his tax issues delicately.

Charles Grassley (R-IA) dug deepest into the tax lapse and asked Geithner which software he used to prepare his taxes during the years in question. After saying the mistakes were his and not the software's, Geithner told the committee he used TurboTax.

As Treasury secretary, Geithner would be tasked with overseeing a mammoth rescue of the nation's economy.

In the past year, the Fed lent out more than $1 trillion in its efforts to stabilize the financial and credit markets. The Obama administration is finalizing its plans for the second part of the $700 billion Troubled Assets Relief Program.

In recent days, President Obama's top economic advisers have made a concerted push to convince congressional leaders and the public that Obama will manage the TARP program in a different way than the Bush administration.

Former President Bush committed most of the initial $350 billion of the TARP to capital injections at financial institutions but required little oversight in their use of the funds.

The Obama administration has said it will focus more on helping consumers, local governments and businesses than on helping banks.

Geithner took pains not to put a price tag on the administration's efforts to further stabilize the markets but said "we want to work with members of Congress in a bipartisan way to address these serious issues."

Geithner, 47, rose from a low-level job in the 1980s to Treasury undersecretary for international affairs under President Clinton. He later was a director of the IMF before becoming president of the New York Fed in late 2003.

In the Fed position, he played a significant role in recent efforts to calm roiled financial markets and is believed to have been a central player in the Bush administration's rescue and sale of Bear Stearns and the bailout of insurance giant American International Group Inc.

Several key committee members voiced strong support for Geithner, saying that Obama needs his full economic team in place as quickly as possible.

"You will be confirmed," Sen. Pat Roberts (R-KS) told Geithner. But Roberts said his phones were "ringing off the hook" from people in Kansas complaining about the prospects of having a Treasury secretary who was careless in tending to his own tax liabilities.

There were several tense exchanges. Sen. Jim Bunning (R-KY) delivered some of the strongest criticism of the day, saying Geithner was "involved in just about every flawed bailout" implemented by the Bush administration. Bunning said the tax mistakes were his biggest worry, saying his research showed the IMF makes such tax payment requirements clear to all employees.

In a later exchange with Sen. Ron Wyden (D-OR), Geithner made a minor mea culpa, saying the New York Fed should have watched financial institutions more closely in recent years.

"Should your supervision have been more effective?" Wyden asked.

"Absolutely," Geithner replied.

Senate Confirms 6 For Cabinet, Delays Clinton

The Senate on Tuesday swiftly approved six members of President Barack Obama's Cabinet, but it put off for a day the vote on his choice to be secretary of state, Hillary Clinton.

The Senate confirmed all six with a single voice vote a little more than three hours after Obama took the oath of office to become the 44th president.

Those confirmed were Steven Chu to be energy secretary, Arne Duncan at education, Janet Napolitano for homeland security, Eric Shinseki to head veterans affairs, Ken Salazar for interior and Tom Vilsack to lead the department of agriculture.

The Senate also approved Peter Orszag, recently the director of the Congressional Budget Office, to head the White House's Office of Management and Budget.

Democratic hopes to add Clinton to that list were sidetracked when one senator, Republican John Cornyn of Texas, objected to the unanimous vote.

Cornyn said he still had concerns about foreign donations to the foundation headed by Clinton's husband, former President Bill Clinton.

Senate leaders agreed to have a roll call vote on Clinton on Wednesday after three hours of debate. Jim Manley, spokesman for Senate Majority Leader Harry Reid, predicted that "she will receive overwhelming bipartisan support at that time."

The Wednesday vote became necessary when Cornyn objected to the voice vote. In the Senate, a single senator can block measures from being approved by voice.

He said he wanted "a full and open debate and an up-or-down vote on Sen. Clinton's nomination." He said important questions remain unanswered concerning the foundation headed by the former president "and its acceptance of donations from foreign entities. Transparency transcends partisan politics, and the American people deserve to know more."

Cornyn spokesman Kevin McLaughlin said the senator is not trying to block her confirmation but is seeking more debate on the donation issue.

Several Republicans raised questions at Clinton's confirmation hearing about possible conflicts of interest from Bill Clinton's fundraising work and his acceptance of large donations from foreign countries and companies.

Also left unconfirmed were several other top members of Obama's Cabinet. Timothy Geithner, the nominee to head the Treasury Department, faces the Finance Committee Wednesday, where he will have to explain his initial failure to pay payroll taxes he owed while working for the International Monetary Fund.

The Judiciary Committee is expected to vote as early as Wednesday on Eric Holder to be attorney general. Also still in the confirmation process is former Senate Democratic leader Tom Daschle, Obama's pick to head health and human services and spearhead his efforts to reform health care.

Robert Gates, who has served as defense secretary under President George W. Bush, will continue in that position in the Obama administration.

The Senate traditionally moves quickly to affirm the new president's Cabinet.

Eight years ago the Senate approved seven members of President George W. Bush's Cabinet, including Colin Powell to be secretary of state.

On Bill Clinton's first day in office in 1993, the Senate gave the go-ahead for the secretaries of state, defense and the Treasury. They next day it approved eight more Cabinet officers.

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