Geithner pledges swift, bold fix to financial system
The most prudent solution is 'the most forceful course,' the Treasury secretary nominee told Congress.
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Much of US debt in recent years has been financed by foreigners, and as US debts rise as a percentage of GDP, the creditworthiness of the nation could come under review – affecting the borrowing costs faced by the Treasury and by Americans in general.Skip to next paragraph
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Income tax questions
In the hearing, Geithner also responded to questions regarding a lapse in his personal income-tax returns a few years ago.
Despite some tough questions posed during the hearing, it appears likely that his nomination will be confirmed, possibly as early as Thursday.
Seeking to hasten that vote, Former Federal Reserve Chairman Paul Volcker spoke in support of Geithner at the opening of the session.
“The financial system is broken,” Mr. Volcker said, and the crisis “will not wait.”
In fact, even as Obama and his team are readying their proposals, Congress is also working on its own ideas for reforming the financial rescue program passed last fall.
The Troubled Asset Relief Program, or TARP, has committed about half of its $700 billion in funding, and policymakers are weighing how to make best use of the remaining $350 billion.
Geithner pledged that the administration’s proposals will address concerns that the money given to banks has not done enough to promote new lending to businesses and that the program lacks transparency for the public.
He acknowledged the need to protect taxpayers but also cited a risk in the other direction: that failing to spend money to assist banks could make the financial crisis worse.
The crisis response involves choosing among various less-than-perfect options. But Geithner said the Obama team is weighing those choices carefully, with the knowledge that restoring the nation’s economic confidence is at stake.
Key focus: troubled assets
Senators grilled the nominee on whether there’s a practical way to remove bad loans – the so-called troubled assets – from bank balance sheets. That was the initial goal of the TARP, but the Bush administration changed course when faced with the difficulties of deciding how much to pay for the assets. Instead, the TARP money went out mainly in the form of capital infusions.
Now, policymakers are considering new approaches to that still-lingering issue of troubled assets.
Charles Schumer (D) of New York said the idea of setting up a “bad bank” run by the government to buy up these loans sounds interesting until you start adding up the costs. He said the total could run as high as $3 trillion or more.
Geithner said the Obama team is aware of the difficulties.
In the testimony, he also walked a fine line in defending his own actions at the Federal Reserve. He conceded that he and others should have done better at supervising banks before the crisis emerged, but he also cast himself as one who urged earlier and stronger steps to deal with the crisis a year ago – well before last fall’s near-meltdown of the system.