TOPICS > Economy

Geithner Weighs Pace of Job Losses, Defends Stress Tests

May 8, 2009 at 6:05 PM EDT
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Treasury Secretary Timothy Geithner defends the stringency of the banking stress tests and offers insight on the pace of U.S. job losses as unemployment reaches 8.9 percent.

JUDY WOODRUFF: Secretary Geithner, thank you very much for talking with us.


JUDY WOODRUFF: Unemployment first. What does it say about our economy when the loss of another 540,000 jobs is viewed as slightly encouraging?

SECRETARY TIMOTHY GEITHNER: No, I agree with you. These are terrible numbers at one level, but it is important that the pace of job loss is slowing a bit. We had a long way to go, but that’s an important beginning. But you’re right, you know, half a million Americans lost their jobs again this month and this economy is still facing enormous challenges and there’s just enormous pains still across the American economy.

JUDY WOODRUFF: There are some economists who are saying what really alarms them is that a fourth — more than a fourth of the people who are out of work have been out of work for over six months. What does that say about where we are?

SECRETARY TIMOTHY GEITHNER: Well, that’s true. That’s just another good measure, again, about how deep this recession it is and how much damage it has already caused. But the important thing — it’s important to focus on the things that are getting better, is that the impact of what the president and this Congress have done already has made a material difference on confidence, the pace of declined economic activity has slowed. Things are stabilizing a bit. Financial markets are getting a little better, interest rates have come down, credit markets are opening up again, and that’s an important beginning too.

Dealing with widespread job losses

Timothy Geithner
Treasury Secretary
But even as growth recovers, unemployment is going to keep rising for a while. So it's not going to be -- it's not going to feel very good for the average American for some time still.

JUDY WOODRUFF: But at the same time, since this recession began in the end of 2007, 5.7 million Americans have lost their jobs -- 2.7 million just in the last four months. When are those jobs going to come back?

SECRETARY TIMOTHY GEITHNER: Well, they will come back, they'll come back. But it's going to take a long time. You know, even as growth starts to recover -- and it will recover -- and most economists think that by the end of this year, we'll start to see the first signs of positive growth again. But even as growth recovers, unemployment is going to keep rising for a while. So it's not going to be -- it's not going to feel very good for the average American for some time still.

But this is an important beginning and I think that the modest improvements in confidence we've seen are essential for recovery and they do reflect not just confidence in this president, but people are starting to see the impact of the very extraordinary and forceful policy changes he started to put in place.

JUDY WOODRUFF: And a side note on jobs -- General Motors, it's being reported, is -- in the midst of all this restructuring, is thinking of sending thousands of jobs overseas. This puts the administration in a tough spot. How comfortable are you with that?

SECRETARY TIMOTHY GEITHNER: Well, you know, we're making a lot of progress, really, in trying to make sure there's going to be enough restructuring in place at GM for it to emerge viable as a profitable company without government support over the longer term. You know, that's something the president is very committed to, and we're making progress to that front. And I just want to emphasize the positive again, which is that we're quite confident now that we're going to be able to put together something that's going to, again, allow this very important company to come back stronger in the future.

JUDY WOODRUFF : But are you urging GM not to send jobs overseas?

SECRETARY TIMOTHY GEITHNER: Well, you know, these are -- I mean, we've got enormous set of difficult choices to make in this context, and that's one of them. But again, the important thing for us is that we have a restructuring in place that's going to work and allow this company, again, to be viable in the future without government assistance.

JUDY WOODRUFF: Even if it means they lose jobs to overseas.

SECRETARY TIMOTHY GEITHNER: Well, you know, again, this company is going to have to be smaller. That's going to have to happen. But we believe that we have the prospect of an outcome -- a program that's going to save thousands of American jobs and make a huge difference in the communities they operate in. And that's very important to the president and important to the country.

How long could recovery take?

Timothy Geithner
Treasury Secretary
We're learning from and taking the lessons from the failures of governments across countries over time, and the biggest failures are that governments don't do enough soon enough ... And we're not going to make that mistake.

JUDY WOODRUFF: You're hearing more economists who are saying even as the decline is leveling off, they are more and more worried that this recover could take -- could be a very slow one -- could take several years. What's your sense of that?

SECRETARY TIMOTHY GEITHNER: Well, that's the risk. I mean, people -- economists generally worry that a recession that comes after a long period where people borrowed too much, banks took on too much risk -- requires a slower, longer recovery, because people have to reduce debt, they're going to have to save more. And that's one reason people are worried that it's going to be -- again, it's going to be a slower process to getting back.

But we're going to do everything we can to make sure that we get -- coming back on track, and that we're laying the foundation for a more sustainable, more balanced, more healthy recover for this economy.

JUDY WOODRUFF: And just from the perspective of many Americans, you hear more and more what they are really worried about -- older Americans -- middle aged Americans -- that their retirement plans have taken such a hit. They've dropped like a rock. They are going to keep working -- they are not going to be able to retire.

SECRETARY TIMOTHY GEITHNER: That's just one example about just how much damage this kind of crisis has caused, you know, because it's -- and this is the tragic thing that happens in all financial crises, where the people that were responsible, they were doing the right thing, they were being careful, they suffer the damage caused by all those judgments, all those imprudent actions of a bunch of others.

And that's what makes it so unfair, and that's why it's so important that governments move aggressively in the face of these crises to try to cushion the impact on average Americans. And that's what this president is doing and that's what these programs will do.

JUDY WOODRUFF: Do you have anything you can say to these folks? I mean, are they right when they say I'm afraid I'm going to have to work for years beyond when I thought I would?

SECRETARY TIMOTHY GEITHNER: Well, what I can say to them is this president is going to do everything he can working with the Congress to make sure that we are putting in place programs that are going to bring the economy back, bring confidence back, put the economy back down a path to growth as quickly as possible.

You know, we're learning from and taking the lessons from the failures of governments across countries over time, and the biggest failures are that governments don't do enough soon enough -- don't treat the problem as aggressively as they need to. And that produces much more damage -- much deeper, longer-lasting recessions. And we're not going to make that mistake.

And if you look at the force of what this president has done, not just in the United States, but working with countries around the world, there is enormous support for demand in growth now -- now in the pipeline and a very powerful program of support to get this financial system working again. And I think that's partly what's helped bring back confidence here and around the world, because people can see this country -- this critical country -- acting with care and force to try to bring us out of this crisis.

Stress test standards 'exacting'

Timothy Geithner
Treasury Secretary
What this stress test did is to show the scale of those resources available to losses against those potential losses. And that's why the disclosure results have helped confidence and been reassuring. These were very exacting standard of tests.

JUDY WOODRUFF: Let's talk about the big banks and the stress tests that were just released yesterday. You're very aware a number of critics are saying that they weren't rigorous enough -- that the government should have been much tougher in assessing these things.

SECRETARY TIMOTHY GEITHNER: This test was designed was designed by the Fed, but let me say a few things about that. This was a very exacting set of standards. I'll give you one example. The loss rates banks were required to assess against are higher than the worst period of losses in the Great Depression. The assumptions the Fed imposed on them for earnings are very conservative. This was a very exacting test, and the most important thing about this test was it brings an unprecedented level of disclosure and transparency to bank balance sheets.

And that's helped lift this big fog of uncertainty over the system. And there's a lot of reassurance for people in being able to see under the hood -- to be able to look under these institutions and see what the losses are like -- and really be there. And that's why I think the prospect of disclosure has helped improve confidence.

JUDY WOODRUFF: At the same time, you know, your worst-case scenario that the administration put out yesterday -- these banks could stand to lose -- worst case, up to $600 billion. There are other scenarios out there. The IMF was saying overall in the financial sector $2.5 trillion. Private estimates $3.5 trillion. Aren't we looking at a situation where these banks are not going to want to start lending again seriously for a while?

SECRETARY TIMOTHY GEITHNER: Well, let me just step back for one sec. The IMF estimates -- and they may be right, may be wrong -- that globally around the world there could be up to $4 trillion of losses over time. About half those, they estimate, are on the books of the U.S. financial institutions, half of which are banks. That translates four trillion into one trillion potentially on the books of U.S. banks, but half of those have already been recognized.

So there's potentially another 500 billion ahead of U.S. banks, but they have very substantial resources to absorb those losses. And what this stress test did is to show the scale of those resources available to losses against those potential losses. And that's why the disclosure results have helped confidence and been reassuring. These were very exacting standard of tests.

The Fed numbers are very close to the IMF estimates and they will help reassure people that this financial system is going to have enough capacity to lend going forward. But that's exactly why we're doing it -- to make sure that there's more confidence in the system, that banks move now to go raise additional capital so that there is a stronger capacity to lend even if they economy turns out worse than people expect now.

JUDY WOODRUFF: And I hear what you were saying just a minute ago about the administration being tough on the banks. But you are aware of, again, critics out there saying you should have been much tougher on them, that what's wrong with nationalizing a bank or two, letting a bank that's made big mistakes fail. What do you, you know, how do you answer that?

SECRETARY TIMOTHY GEITHNER: This is a very exacting, tough set of standards. These institutions -- all of these institutions today, have enough capital to exceed their regulatory requirements. The idea that we'd have a stronger financial system if the government came in, in that context and took over institutions, and that would make our system stronger, it's just a -- there's not a tenable case of that.

That would be a much more expensive strategy, a much riskier strategy for the country, we end up costing the taxpayers much, much more money, it would cause greater damage to -- you know, we have a system of 9,000 banks. And to create the prospect, you know, the government of the United States come in and take over institutions that exceed their regulatory capital requirements -- and that would create a stronger system -- does not make sense. And I don't think there's any credible case for that.

Again, what our job is, is to make sure that this financial system has enough capital in it that it and help support recovery with enough credit. Credit is the lifeblood of recovery, it's the oxygen economies require. It's not providing enough oxygen today, but that's what these programs will help do.

Insuring regulators' independence

Timothy Geithner
Treasury Secretary
The only thing that we care about and the only obligation I have is try to make sure this financial system is doing a better job of meeting the needs of businesses and families across the country.

JUDY WOODRUFF: All right, I guess my job is to lay out the criticism. Yet another one is that this administration -- that there are too many people at the top -- in your position and at the White House who are too close to Wall Street, that having been there, you know these companies, you've been connected with these companies through the New York Fed. Your board is representing the companies that have had to be bailed out. The criticism is that, you know, when you've been in that mindset, you can't really step back and be objective -- that you're ultimately too easy on Wall Street.

SECRETARY TIMOTHY GEITHNER: I've been in public service all my life. I've spent all my life working in government on ways to make our financial system stronger, better economic policy for this country. That's the only thing I've ever done. And I would never do anything and be part of any policy that's designed to benefit some piece of our financial system. The only thing that we care about and the only obligation I have is try to make sure this financial system is doing a better job of meeting the needs of businesses and families across the country.

And you will see -- you've seen in what we've done already -- the most aggressive, most proactive response to a financial crisis I think you have seen any country take in decades. And you will see in this president's plans to reform the financial system the most aggressive set of reforms -- the entire financial system. Then again, this country has contemplated, in the last decade -- people will want to measure us by what we do.

But if you look at what we've laid out already -- what we're proposing in terms of reform -- you're going to see a very aggressive approach to reform, because that's what we think this economy requires. You know, we had a financial system that did a terrible job of protecting consumers, of building a strong, stable financial system less prone to crisis and we are going to have to fix that, and I feel a deep personal obligation to make sure I'm doing everything I can to help this president bring that about.

But again, watch what we do, measure us by what we've proposed and what we try to accomplish and you will see this president, this administration bringing sweeping reforms to our financial system.

JUDY WOODRUFF: One of those reforms having to do with compensation?

SECRETARY TIMOTHY GEITHNER: In that area too, again, you know, again, we had a -- this is the crisis caused in part by the fact that compensation practice just got way out of whack and compensation just overwhelmed all those checks and balances in the system. And to create a stronger, more stable system, we're going to have to reform those practices and the leaders of the financial community in the United States are going to have to fundamentally change the way they pay their senior executives and their people and we're going to make sure that regulation and standards are enforcing that -- reinforcing that basic imperative.

JUDY WOODRUFF: Secretary of the Treasury, Tim Geithner. Thank you very much for talking with us. We appreciate it.