By David Cho
Washington Post Staff Writer
Tuesday, January 27, 2009
Timothy F. Geithner was confirmed by the Senate yesterday as Treasury secretary and will immediately face tough sledding as the Obama administration prepares to spend hundreds of billions of dollars to try to rescue the financial system.
Despite their misgivings about his failure to pay nearly $43,000 in taxes on time, senators endorsed Geithner as the best candidate to lead the government's response to the financial crisis. But the 60-to-34 vote was relatively close for a cabinet confirmation, reflecting the controversy that dogged his nomination.
Less than two hours later, Geithner was sworn in inside the gilded Cash Room at the Treasury Department with President Obama by his side in a show of support. Geithner pledged to launch initiatives quickly to jump-start the credit markets and the broader economy.
"We are at a moment of maximum challenge for our economy and for our country," he said, standing next to his wife, Carole, and Vice President Biden. "In the world we confront today, Treasury has to be and Treasury will be a source of bold initiative."
Geithner's first act at Treasury, which is set to be announced today, takes aim at limiting the influence of lobbyists seeking rescue funds from the department's $700 billion financial rescue program, government officials said.
His next steps could be more controversial. Within a week or so, Geithner and other senior administration officials are likely to announce a mix of initiatives that would offer more government money to financial firms and help these institutions deal with mounting losses from toxic assets, which are backed by failing mortgages and other troubled loans, according to two sources in contact with Obama officials.
While Obama's economic team has promised to help homeowners, small businesses, municipalities and other consumers get better access to credit, several senior government officials and economists said they expect the bulk of the rescue funds to go to financial firms.
The proposals on the table include setting up a government bank to purchase troubled assets from financial firms -- likely with the help of the Federal Reserve -- and offering federal insurance on losses from these assets. Treasury officials will likely try a combination of these proposals so the response can be tailored to the needs of different firms and types of assets, sources said.
What is unlikely is using most of the rescue funds to set up a single institution, such as the Resolution Trust Corp. established to deal with the Savings and Loans crisis of the early 1990s.
Administration officials are also trying to offer federal assistance to financial firms without nationalizing them outright, according to a source who has been in contact with senior Treasury officials. The problem is the price of banks shares is so low now that a major investment of taxpayer money would leave the government with a majority ownership stake.
The rescue efforts may require more than the $700 billion that Congress has approved for the Treasury Department to spend on aiding the financial system, top administration officials said over the weekend. Key Democrats in Congress said last week that they are bracing for a request from the administration for more financial rescue money, which could prove unpopular.
Geithner, 47, has already faced a rocky road to the top Treasury post. For the past weeks, he worked behind closed doors with the rest of Obama's economic brain trust to shape new rescue programs while attempting to answer questions about his delinquent taxes.
Yesterday, during remarks before the Senate vote, members of both parties criticized Geithner for his leading role in engineering bailouts for some of Wall Street's biggest firms and his failure to pay personal taxes on time between 2001 and 2004 when he worked for the International Monetary Fund.
During his confirmation hearings last week, Geithner admitted that his tax delinquencies were "careless mistakes" but "unintentional."
But his answers did not satisfy Republican senators who said he was not forthcoming about why he did not pay all of his back taxes when he was audited in 2006. Several of them called him to lead Treasury, which oversees the IRS.
"Can this system operate with integrity if all parts of it reports to someone who was unable to meet his own obligations over a long period of time and did so only as a condition of his nomination?" asked Sen. Charles E. Grassley (R-Iowa), who voted against the nomination. Three Democrats and one independent voted against the confirmation.
With Geithner confirmed, the Fed is expected to announce his replacement today. A government source said the choice would be William C. Dudley, a former Goldman Sachs economist who currently works at the New York Fed.
The rest of Geithner's staff is also taking shape. A possible candidate for deputy secretary is Annette Nazareth, a partner at the law firm Davis Polk & Wardwell and a former member of the Securities and Exchange Commission who is a friend of Geithner, another government official said.
Geithner tapped another close friend, Gene Sperling, to be a counselor for domestic economic policy.
Lee Sachs, who was an assistant Treasury secretary during the Clinton administration, is likely to be named as the undersecretary for domestic finance, the official added.
Geithner's chief of staff is Mark Patterson, who oversaw policy for former senator Thomas A. Daschle. Kim Wallace will head legislative affairs for the Treasury, while Stephanie Cutter, who served as deputy communications director in the Clinton White House, will serve as a counselor. Two Bush administration holdovers will stay on. Stuart Levey will continue his work in financial counterterrorism and Neel Kashkari will oversee the financial rescue program on a temporary basis.