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Geithner: Bush Economic Policies Made Recession Worse

September 8, 2010 at 5:57 PM EST
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In an interview with Jim Lehrer, Treasury Secretary Timothy Geithner said that President Obama deserves credit for stopping an economic "free fall," exacerbated by the fiscal policies of the Bush administration.
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JIM LEHRER: And now to Treasury Secretary Timothy Geithner. I spoke to him earlier this evening about President Obama’s speech today.

Mr. Secretary, welcome.

TREASURY SECRETARY TIMOTHY GEITHNER: Good to be here, Jim. Thank you.

JIM LEHRER: The Republicans caused the current economic mess and now are refusing to participate in helping fix it; is that legitimately — is that a legitimate description of what the president’s message was today?

TIMOTHY GEITHNER: Jim, I’m — I’m the wrong person to ask about politics or messages, as you know. But what I can tell you is this, which is, this crisis was much more damaging than almost anybody thought. It’s going to take us a longer time to dig out of this hole. It’s going to be harder because the damage was so severe and so savage. That process is going to take time.

But we have been — now been growing for more than a year. The private sector — the private sector, not the government — the private sector has now created more than three-quarters-of-a-million jobs. We saw job growth come back sooner than happened the last two recoveries. Parts of the economy are actually doing reasonably well. You know, the American companies that make the things the world needs were very innovative, very productive, doing quite well. But parts of the economy are very hard still, very tough.

And what the president is trying to do and what our responsibility in Washington is to try to do is to try to figure out ways to help reinforce this recovery, get people back to work more quickly. And what the president laid out today was the smartest, most sensible set of ideas that we could find to help reinforce this process of recovery.

JIM LEHRER: But he said over and over again — he said it not for the first time, but he said it over and over again today — that he inherited this, that this didn’t happen on his watch. This happened on — in the other watch.

TIMOTHY GEITHNER: But that’s, of course, unassailably true. When the president took office, the American economy, the envy of the world, was falling off the cliff. Growth was declining at an annual rate of about 6 percent. We were losing three-quarters-of-a-million jobs every month. The American financial system was in freefall.

People were wondering whether they should keep their money in banks, whether they should buy treasuries, the first time since the Great Depression that happened. That was the reality when this president came into office. And there was no way out of that, except for the president, working with the Fed and the Congress, to go take aggressive, strong, bold actions to arrest the freefall and start the economy growing again. And that’s what he did, and that’s what’s happened.

But these things — these recessions doesn’t capture it. Crises caused by financial crises, they take time to heal, time to grow out of it. We have a lot more work to do. And, again, our responsibility is to do everything we can to make sure we’re trying to get — find ways to get Washington to act, to strengthen private investment, get people back to work.

JIM LEHRER: But is it correct to say that, had there been a different president and a different set of officials in the government of the United States before, this would never have happened?

TIMOTHY GEITHNER: The crisis itself?

JIM LEHRER: Yes.

TIMOTHY GEITHNER: Oh, absolutely. The — the financial crisis was caused by a set of policy choices that we made as a country over a significant period of time, certainly the decade before that. So, we saw financial institutions across the country take on a huge amount of risk without restraint. You saw the government of the United States living way beyond its means, borrowing with — from future generations to finance a set of programs and tax cuts, without paying for them.

Now, lots of other things contributed to this crisis, but the crisis was much more damaging because of those basic judgments. And it’s going to be much harder to solve, take more time to solve because of those basic judgments. Those were consequences of policy choices. Now, they weren’t solely the responsibility of the previous president or Republicans across a period of time. A lot of responsibility across the country for those choices, but they were — the crisis was made worse by and was made much harder to solve because of the cumulative set of policy choices that happened in the decade before this president took office.

JIM LEHRER: Is the politics of today making it much more difficult to solve now?

TIMOTHY GEITHNER: It is making it harder to solve, yes.

JIM LEHRER: So, explain — explain the — from your point of view, as secretary of the treasury, where are the politics getting in your way to do what you think should be done?

TIMOTHY GEITHNER: I will describe it in two very practical ways I think people can understand.

JIM LEHRER: OK.

TIMOTHY GEITHNER: The president of the United States outlined earlier this year a set of targeted, very sensible measures to again help get people back to work more quickly, help make sure we’re helping cushion and repair the damage caused by this, extending unemployment insurance, giving more money to states, so they can keep teachers in the classroom, providing support to small businesses, tax incentives for small businesses, a new jobs tax credit so that businesses have the incentive to hire more people back.

Now, it is — those were good, sensible policies. Congress has been working very hard to enact those policies. It’s taken much longer than they expected, because they have had no support and lots of opposition from Republicans in Congress. That’s not a political statement. That’s a reality. So, the — if there had been more on those measures sooner, the economy would be stronger today. But there’s another effect which is also very damaging and hard to quantify…

JIM LEHRER: OK.

TIMOTHY GEITHNER: … which is that — and I think people can understand this — which is, I think the American people want to see people in Washington whose responsibility is to govern come together and do things that are going to make the country stronger, better, not spend their time in disarray, fighting about these kind of things, and having politics overcome policy.

And I think the spectacle of the American people seeing how hard it is in Washington to get stuff done doesn’t help confidence. Now, there has been a lot of talk about confidence and uncertainty.

JIM LEHRER: Sure.

TIMOTHY GEITHNER: In the face of that — it’s good to point this out — in the face of that, you are seeing businesses across the country start to invest again.

Private investment — not public investment, not the government, but private investment in the United States expanded at an annual rate of 20 percent a year in the first half of this year, stronger in the second quarter than the first quarter. That’s encouraging. It’s slowed a bit since then, which is one reason why it’s a good idea now to sort of take additional actions to help stimulate private investment.

JIM LEHRER: So, the Obama administration shouldn’t accept — or doesn’t deserve any blame for what has happened over the last two years to try to dig this out and for things not to have happened quicker?

TIMOTHY GEITHNER: Think of the way — again, I’m not the right person to ask about politics, Jim, but think about what the dominant debate has been over this country for much of the — at least the first part in ’09, which was that the administration was doing too much for the economy too quickly.

What the president did was absolutely essential. Nothing would have been possible without it. Without the president of the United States and the Federal Reserve acting aggressively to stop an economy in freefall, help put out that financial fire, nothing would have been possible.

Now, you can look back — and people will look back over time — to say, could you have found a way politically to do more? It’s hard to know the answer to that question now. But you can see the president of the United States acted with extraordinary speed and a lot of political courage, because he knew that all the things necessary to start to arrest that crisis, repair the damage, were going to be politically unpopular, difficult to do, and he was willing to take that risk, as he should have been, because that was the responsible thing to do.

JIM LEHRER: But any reading of any political poll right now shows that people don’t believe that.

TIMOTHY GEITHNER: I think this is the basic tragedy of how you think about financial crises. It’s very hard for people to appreciate, particularly for Americans at this time, what the scale of risk is, what the — in terms of how bad things could have been, what was necessary.

JIM LEHRER: Could have been?

TIMOTHY GEITHNER: Could have been.

JIM LEHRER: Not are.

TIMOTHY GEITHNER: Yes, exactly. And the actions that you have to take in a financial crisis are deeply unpopular. That’s why most governments wait too long to act. That’s why crises become much more acute, much more expensive to solve.

But what the president did was the necessary, essential beginning of a foundation that grew out of this. And, of course, we don’t — we’re not done. And he said from the beginning — and this is absolutely critical to — for people to understand, which is, we are going to keep at this until we repair the damage, we get Americans back to work.

And we knew it was going to take a sustained-period effort over a long period of time. And what you saw the president today do is to say, here’s what’s next. Here’s the most important things we can do next to help strengthen the private sector.

JIM LEHRER: But it must be a terrible disappointment to you, as well as the president, that things have not gone faster than they have.

TIMOTHY GEITHNER: I — again, it’s very hard to know what would have been possible. The lesson…

JIM LEHRER: You didn’t expect things to go quicker? You didn’t expect unemployment to…

TIMOTHY GEITHNER: I actually think reasonable expectations of most people, most economists, compared to what people thought at the beginning of January of 2009, you had growth come back more quickly, stronger than almost anybody would have predicted.

I will just give you an example.

JIM LEHRER: OK.

TIMOTHY GEITHNER: When the president came into office, people thought it was going to take maybe $700 billion, maybe trillions of dollars, to solve the financial crisis.

But because of the impact of what the president and the Fed did, you know, we have either recovered or left unspent more than three-quarters of the authority Congress gave us to solve the financial crisis. We have got that money back from the banks much more quickly, at a substantial return.

And, again, we have had much more impact on stabilizing things than we thought was possible. Now, the fact that this is going to take time is something we knew. Americans were living beyond their means for a long period of time. And that was not just the government. And people were borrowing against future income to spend things that, in retrospect, they probably couldn’t afford.

It’s going to take time for them to rebuild savings. That’s necessary. People think that’s weakness, but it’s really strength, because there’s really no path to a more sustainable recovery in the United States that doesn’t have to go through, you know, not just the financial sector deleveraging and still working through the problems in housing, but Americans starting to save again. And you’re seeing that — and you’re seeing that happen.

JIM LEHRER: The president mentioned House Minority Leader John Boehner several times in his speech today. He had earlier as well. But Boehner, as you know, a few days ago, said that one of the first things the president ought to do is fire you, the secretary of the treasury, and other members of his team, if he really wants to get things going on the economy.

I assume you think that’s a really lousy idea?

TIMOTHY GEITHNER: It’s not a new idea. It’s an old idea. A lot of people have had it. My wife had it first, I think.

(LAUGHTER)

TIMOTHY GEITHNER: And, as I always say, Jim, I’m going to do this as long as the president asks me to do it.

JIM LEHRER: Mr. Secretary, thank you.

TIMOTHY GEITHNER: Nice to see you, Jim.