Geithner Pledges Forceful Attack On Banking Crisis
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...
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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