By David Cho
Washington Post Staff Writer
Thursday, January 22, 2009
Treasury secretary nominee Timothy F. Geithner said yesterday that the Obama administration would unveil a three-pronged strategy within weeks to aid financial firms, struggling homeowners and the consumer credit markets using the remaining $350 billion of the government's financial rescue program.
"The ultimate costs of this crisis will be greater if we do not act with sufficient strength now," Geithner told the Senate Finance Committee during his confirmation hearing. "In a crisis of this magnitude, the most prudent course is the most forceful course." He promised that the Obama administration would offer a "clear plan" but provided few specifics.
Geithner, 47, also faced tough questions about his role last year in devising federal bailouts for Wall Street's biggest firms and his failure to pay all of his taxes on time between 2001 and 2004.
Geithner, who settled his outstanding taxes only after he was nominated to the Treasury post, said he signed his tax forms without reading them carefully. "These were careless mistakes. They were avoidable mistakes, but they were unintentional. I should have been more careful," he said. He apologized to committee members for making them spend time on his personal history when the nation faced more pressing issues.
Although lawmakers from both parties expressed misgivings about Geithner's personal tax history -- pointedly noting that he would be overseeing the Internal Revenue Service as Treasury secretary -- they said they were even more concerned about the worsening financial crisis and viewed him as the right man for the job.
Even key Republicans predicted that Geithner, the president of the Federal Reserve Bank of New York, is unlikely to encounter serious obstacles on his path to the Treasury Department, where he would serve as Obama's top adviser on the financial crisis and manage a $700 billion financial rescue program. The Senate Finance Committee is set to vote on his nomination today.
Sen. Charles E. Grassley of Iowa, the committee's ranking Republican, said that Geithner's qualifications and role in carrying out the government's financial rescue program "gives him unique insight" during a critical time in the crisis. Grassley said that "to some he isn't merely the best choice, to some he is the only choice," but that his tax history would reflect poorly on a Treasury secretary.
A full floor vote could happen as early as Friday, but any Republican in the Senate could hold up the nomination, leaving Stuart Levey, a Bush administration holdover who oversaw a terrorism finance enforcement division, in charge of the Treasury.
If Geithner's confirmation is delayed, Senate Majority Leader Harry M. Reid (D-Nev.) said yesterday that he would force cloture votes over the weekend.
Aside from his tax history, lawmakers grilled Geithner on his strategy for the remaining financial rescue funds.
Geithner said his department would aim to remove constraints that hinder small businesses, car buyers, students and municipalities from getting loans.
The administration is also considering establishing a "bad bank" to buy toxic assets that are at the core of the financial crisis because they prevent banks from lending to each other, he said.
Buying these problematic assets was the original purpose of the $700 billion financial rescue program approved by Congress in October but was quickly abandoned by senior Bush administration officials. They explained at the time that the toxic asset problem was so large and complex that it could eat up too much of the rescue money.
Geithner declined to be more specific about the idea but confirmed that President Obama's advisers were looking at the issue closely since "bad bank" initiatives have helped nations overcome most financial crises. But he said such proposals "are enormously complicated to get right."
Former Federal Reserve Chairman Paul A. Volcker, in introducing Geithner to the committee, said that restoring health to the financial system and economy would require an unprecedented public investment.
"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," Volcker said. "Obviously commitments made of that magnitude raise very large questions," including the need to avoid wasting taxpayer money, raising fears of future inflation and risking the undermining of confidence in the dollar."
Geithner, who played leading roles in engineering bailouts of investment bank Bear Stearns and insurance giant American International Group, said the actions taken last year were necessary to stabilize the financial system. But he vowed to bring greater oversight to the emergency rescue effort called the Troubled Assets Relief Program.
He also urged lawmakers to approve Obama's economic stimulus plan, which includes proposals for $825 billion in spending from a combination of tax cuts and infrastructure projects aimed at saving or creating more than 3 million jobs over the next two years.
"If we do not demonstrate by our actions a clear and consistent commitment to do what is necessary to solve the problem," he said, "then we risk greater damage to living standards, to the economy's productive potential and to the fabric of our financial system."
Geithner suggested that a proposal favored by the administration to modify mortgages held by homeowners in personal bankruptcy would likely not be included in the stimulus bill but in separate housing legislation now in the House. Most lenders oppose the measure, saying it would raise the cost of making home loans because of the possibility lenders could lose control over the loans in a bankruptcy.
The bankruptcy bill was discussed during two Democratic caucus meetings last week, according to a congressional source. While members were supportive of the provision, the meetings were inconclusive and it remains unclear what form it will take and whether it can be included in the stimulus package, the source said. The House Judiciary Committee has scheduled a hearing today on the bankruptcy provision.
On aid to the nation's ailing automakers, Geithner vowed he would make a comprehensive overhaul of the industry a condition of federal help. He said the government was in the process of putting together a team of experts to advise Obama on the restructuring of manufacturing firms.
While he sought to address the concerns of most members of the committee, at least two Republicans expressed reservations about Geithner's candidacy.
"Mr. Geithner has been involved in just about every flawed bailout action of the previous administration," said Jim Bunning (R-Ky.). "He was the front-line regulator in New York when all the innovations that recently have brought our markets to their knees became widespread. . . . All those actions, or failures to act, raise questions about the nominee's judgment. But the failure to pay taxes specifically provides -- provided to him by the IMF is the most troubling, because it reflects a degree of negligence towards the law he will be charged [with] enforcing."