President Obama Goes To Work While Treasury Secretary Designate Geithner Takes The Hill
Wednesday, January 21, 2009SUSIE GHARIB: Bold changes today from President Obama in his first full day in office. He instituted new restrictions on lobbying, imposed a salary freeze for highly paid White House staffers and is working on a more dramatic approach to rescuing the nation's banks. Obama's nominee for Treasury Secretary Timothy Geithner said the plan should be ready in a few weeks, but declined to say how much it might cost. That revelation came out at Geithner's confirmation hearing on Capitol Hill today. He was grilled by senators about his personal tax problems and also about the policy moves he's made to deal with the financial crisis. As Darren Gersh reports, Geithner not only defended his past decisions, he also talked about his future strategy.
DARREN GERSH, NIGHTLY BUSINESS REPORT CORRESPONDENT: The man Barack Obama wants to run the Treasury told senators at his confirmation hearing today, the lesson of financial meltdowns is to do a lot soon and stay with it. And Timothy Geithner made it clear the Obama administration is prepared to do just that.
TIMOTHY GEITHNER, TREASURY SECRETARY-DESIGNATE: We're at the beginning of this process of repairing the system, not close to the end of that process. And it is going to require much more substantial action on a very -- on a very dramatic scale.
GERSH: Former Federal Reserve Chairman Paul Volcker explained how the Obama team defines dramatic when he introduced Geithner this morning.
PAUL VOLCKER, CHAIRMAN, ECONOMIC RECOVERY ADVISORY BOARD: Over time the hard fact is, several trillions of dollars will be necessary to be committed in a combination of budgetary expenditures and various guarantee and insurance programs and extensions of credit by the Federal Reserve.
GERSH: The Obama administration is considering fulfilling the original mission of the financial bailout Congress approved last fall, but on a far larger scale. That would involve creating what's come to be known as a bad bank.
TOM GALLAGHER, POLITICAL ECONOMIST, INTERNATIONAL STRATEGY AND INVESTMENT: It is basically a government set up entity that would buy the toxic assets from the banks.
GERSH: Political economist Tom Gallagher says the bad bank could help unlock the financial system.
GALLAGHER: The whole problem right now is that banks are perceived to be undercapitalized and that's because of the uncertain value of these toxic assets, so then bank management thinks they better horde their capital and not make loans to prepare for further write downs.
GERSH: But the prospect of funding a bad bank is raising concern with lawmakers like New York Senator Chuck Schumer.
SEN. CHARLES SCHUMER (D) NEW YORK: I did a little calling this weekend to people who would know and they said it could be $3 trillion, $4 trillion. If you did the whole good bank, bad bank across the board, which creates great worries for the dollar and for you know, inflation down the road. I mean it just shakes our financial system, something that large.
GERSH: Geithner did not accept or dispute Schumer's price tag. Key to the success of the bad bank is the method used to value the mortgage securities and other toxic assets the government buys. Geithner said the administration is considering using market prices, financial models or letting regulators make the call.
GEITHNER: There's a range of approaches you can do. All of them have risks. All of them are imperfect. They all have limitations. Most people, I believe, I think you need to look at a mix of those type of measures. But it's very hard to do but critically important to get right.
GERSH: Senators also grilled Geithner for failing to pay self- employment taxes for several years. He apologized and said he made a careless mistake. The issue does not look like it will derail the nomination and even Republicans predict Geithner will soon be confirmed. Darren Gersh, NIGHTLY BUSINESS REPORT, Washington.
