Geithner's big week with Congress, bank plan
The Treasury secretary begins to find his footing after a shaky start.
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It’s a matter of hot debate among finance experts. Many say that Geithner’s approach can work and that more drastic measures should be a last resort.Skip to next paragraph
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“The proponents of nationalization seem to be dramatically underestimating the difficulties ... of that approach,” says Douglas Elliott, a former investment banker now at the Brookings Institution in Washington.
Necessity of fixing the banks
Whatever approach is right, fixing the banks is widely seen by economists as a must, to give the economy a shot at normal growth after the current recession.
In this sense, despite all the populist outrage in the air, Wall Street and Main Street are closely joined.
Geithner has been working full-bore to address the crisis, but he confronts numerous challenges.
He weathered some controversy over personal income-tax mistakes. His first major speech, giving the outlines of his overall “financial stability plan,” was widely panned as too vague. He’s been slow to fill key positions around him at Treasury, announcing some this week.
Then came the revelation that AIG employees had received $165 million or more in bonuses, even as the firm has been costing taxpayers billions.
By last week, some Republican lawmakers were calling for Geithner to go.
Obama is standing by the secretary and was literally at his side earlier this week to support the toxic-asset plan. When appearing Sunday on CBS’s “60 Minutes,” the president said “no” when asked if Geithner had offered to resign.
“He shouldn’t,” Obama said. “And if he were to come to me, I’d say, ‘Sorry, buddy. You’ve still got the job.’ ”
Obama will own the results of the Treasury policies. He knew in selecting Geithner that he was choosing someone who, as president of the Federal Reserve Bank of New York, was an architect of financial rescue moves begun last fall, including that of AIG.
Geithner, Bernanke offer explanation for AIG
At Tuesday’s hearing on the Hill, Geithner and Fed Chairman Ben Bernanke appeared together in the House to defend their AIG actions.
Mr. Bernanke said AIG’s collapse would have been handled much differently last September had the government had in place a framework for coping with the failure of a large nonbank firm.
Back then, officials say, the choices essentially were a full bailout (as at AIG), with the resulting onerous costs, or a bankruptcy (as at the investment firm Lehman Brothers), which can stir chaos in financial markets.
Geithner and Bernanke argued that with a different system, such as the one that allows the Federal Deposit Insurance Corp. to resolve failed banks, the balance between taxpayer costs and economic fallout could be better managed.