By Don Miller
U.S. Treasury Secretary-nominee Timothy Geithner told the Senate Finance Committee yesterday (Wednesday) that drastic measures are needed to combat the U.S. recession and promised to overhaul the beleaguered $700 billion Troubled Assets Relief Program (TARP).
Testifying after former Fed Chairman Paul Volcker, Geithner told the committee the United States is facing "the mother of all financial crises." Geithner also urged Congress to quickly pass a robust stimulus plan, Bloomberg News reported.
"If our policy response is tentative and incrementalist, if we do not demonstrate by our actions a clear and consistent commitment to do what is necessary to solve the problem, then we risk greater damage to living standards, to the economy's productive potential, and to the fabric of our financial system," he told the committee at a hearing on his nomination.
The credit crunch and housing market collapse require a "comprehensive plan" that must be coordinated with international partners to effectively relieve global economic conditions, Geithner said.
Promising to reform the TARP program, Geithner said the Obama administration will require banks receiving government money to provide proof of increased lending. Some Senators sitting on the panel are upset at how the Treasury-administered financial rescue program has been run.
"We have to fundamentally reform this program to ensure that there is enough credit available to support recovery," Geithner said.
He said the administration is considering expanding the system to help small businesses and families that are losing their homes and jobs. Former Treasury Secretary Henry Paulson, so far, has limited the program to injecting capital into banks.
The Obama team is also considering further steps to shore up the banking system, including the possibility of having the government take bad assets off banks' books, according to people familiar with the thinking of the Obama team, Reuters reported.
Geithner, currently president of the New York Federal Reserve Bank, said it was possible the administration could establish a "bad bank" to soak up toxic assets held by banks that are discouraging them from lending.
Banking Regulations Should Change
Geithner also called for "comprehensive" regulatory changes to prevent a future economic crisis of this magnitude – the worst since the Great Depression – from happening again.
"We need to move quickly to build a stronger, more resilient system now, with much greater protections for consumers and investors, with much stronger tools to prevent and respond to future crises," he said. "Well-designed financial regulations with strong enforcement are absolutely critical to protecting the integrity of our economy."
His statements echoed the sentiments of our own Shah Gilani, who provided guidelines on how to implement effective regulatory reform in Monday's edition of Money Morning.
"The inability of the present system of regulation to deal with the complexities of expanding capitalism and protect us from inordinate concentrations of systemic risk has been tragically demonstrated. It is time that the crumbling walls of regulation are replaced with a new singular, transparent, effective and dynamic regulatory apparatus,"Gilani wrote.
Geithner, president of the Federal Reserve Bank of New York, was also grilled by lawmakers about his failure to pay $34,000 in taxes over several years in the first half of the decade. That issue – as well as a second, regarding the employment of a housekeeper without a work permit – fueled the doubts of some Republicans, who were blocking efforts to fast track Geithner's nomination.
Geithner said his tax errors were "careless" and unintentional, and he apologized to the committee for the toll they have taken on his confirmation process. As reported by Money Morning on Jan. 19, Geithner actually placed phone calls to individual senators, hoping to persuade them his tax problems were the result of innocent errors.
Apparently it worked. Confirmation appears to be a fait accompli as several Democrat and Republican senators on the Finance Committee voiced strong support for Geithner.
Senate Finance Committee Chairman Max Baucus, D-Mont., said Geithner made "disappointing mistakes" that shouldn't derail the nomination.
"After discussing them with Mr. Geithner, I believe them to be innocent mistakes," Baucus said.
News and Related Story Links:
Troubled Asset Relief Program
Geithner urges bailout reforms
- Money Morning:
An Open Letter to President-Elect Barack Obama: How a Regulatory Makeover Can Fix the Financial Crisis
- Money Morning:
Could Tax Problems Trip up the Confirmation of the Best Candidate for Treasury Secretary?