Geithner Preparing Overhaul Of Bailout

Treasury Secretary nominee Timothy Geithner and Lawrence Summers, who will head the National Economic Council, listen to Barack Obama at George Mason. (By Linda Davidson -- The Washington Post)
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Obama's top officials have begun discussions with key lawmakers on the TARP changes, but no decision has been made on when they will ask Congress for the balance of the rescue funds. It is possible that the request could occur before Obama's inauguration. In which case, Paulson, not Geithner, would ask for the money. Paulson in an interview this week said he would fully cooperate with Obama's team.

In building a case for the additional $350 billion, however, Geithner must also allay concerns about his past responses to the financial crisis. Geithner, as president of the Federal Reserve Bank of New York, was a leading architect of the bailouts of Bear Stearns, American International Group and Citigroup.

Some lawmakers plan to press him during his confirmation hearing to justify his role at those critical moments of the crisis and on what he plans to do to improve the financial system bailout. Others added that Geithner will have to explain how he would track how recipients of TARP money are spending taxpayer dollars.

The confirmation hearing in the Senate "will be one of the most important that the Finance Committee holds this year," said Sen. Max Baucus (D-Mont.), chairman of the panel. "In the meetings leading up to this hearing, I've been encouraged by the early plans for TARP that Mr. Geithner and other folks on the Obama economic team have outlined. There's no time to waste in righting the ship."

A date for Geithner's confirmation hearing has not been set. But two congressional sources said they expect it will take place Jan. 15.

Several lawmakers on Capitol Hill said they are still angry over the TARP program because it used $350 billion and was largely unsuccessful in unfreezing lending markets. Some banks that took government money continued to pay huge bonuses to executives and dividends to shareholders. Democrats expressed disappointment that the Bush administration did not use rescue money to help homeowners facing foreclosure.

But advocates of the program, including Paulson, said that the financial system would be much worse without the bailout.

"It's been an essential tool and authority to prevent the collapse of the financial system. And I've been very clear that the second part will need to be taken down and that it's vital to our financial security," Paulson said. He added that Geithner "enjoys the confidence of Congress and the markets, and he understands these issues as well as anyone and he understands the TARP in great detail, so he's very well positioned to take this effort forward."

Staff writers Binyamin Appelbaum and Neil Irwin contributed to this report.