By David Cho
Washington Post Staff Writer
Sunday, February 15, 2009
ROME, Feb. 14 -- Treasury Secretary Timothy F. Geithner laid out the Obama administration's financial rescue program for his international counterparts Saturday in an effort to rally a vigorous global response to the worsening crisis and reassured the world's leading economies that the U.S. plan is more developed than the outline he unveiled publicly last week, officials said.
Senior finance officials from the world's leading nations spent much of a six-hour meeting discussing how to deal with the problem at the heart of the financial crisis: the toxic assets backed by failing loans that are clogging banks' books, according to two senior officials at the meeting, which was closed to the news media.
Geithner is considering a strategy using public and private funds to tailor solutions for specific banks, the officials said. In one case, government guarantees would be provided to protect a bank from future losses caused by the toxic assets. In another case, the government would buy the assets outright from a bank.
Speaking from a few pages of notes that he had quickly scribbled in a small notebook, Geithner laid out for finance ministers the thinking behind the $787 billion economic stimulus and the U.S. financial rescue, which could contain more than $2 trillion in public and private spending. The initiatives, Geithner told the officials, were designed to be massive enough to address the depth of the U.S. crisis and last long enough to stimulate the economy for the duration of the recession.
Geithner did not press other nations to adopt the same approach, officials said. But in describing the U.S. response, he delivered clear messages: Be realistic about the trouble facing your economy. Develop rescue initiatives sooner rather than later. And make them big enough to meet the challenges ahead.
"You've seen the new administration in the U.S. move with unprecedented speed, not just to work with the Congress to authorize new resources to help strengthen the financial system, but to move very, very quickly to put in place this very powerful economic recovery plan," he told reporters after the meeting. "What's important now is you hear around the world a much greater sense of urgency and commitment . . . We all recognize that the power of what we do individually will be much more effective if we move together."
Geithner's message was well received at the talks, known as the G-7, which gather the United States, Canada, Japan, and four major nations from Europe. Russia and world financial organizations also attended.
Going into the meeting, Canadian Finance Minister James M. Flaherty called the U.S. financial rescue "less than clear," echoing comments made by financial chiefs in France and Germany. Afterward, many of the officials appeared reassured, saying that Geithner provided clear answers to their questions.
Several officials said Geithner was particularly helpful in explaining how the various elements of the administration's initiatives tie together as well as how he plans to combine public funds with private resources to get more bang out of every rescue dollar the governments spends.
"What Tim Geithner wanted to do is set out the framework in which he's operating," Britain's Chancellor Alistair Darling said in an interview. "But he's made it very clear that he sees the urgency of this." Darling told a group of reporters: "It's quite clear that the new American administration is getting into its stride, it wants to make a real difference not just for Americans but for the wider world."
Such reactions provided Geithner with a small triumph after a tumultuous first three weeks in office. During his confirmation hearings, he faced questions about his history of delinquent taxes and then was widely criticized for being vague when he unveiled his rescue plan for the financial system Tuesday.
In hindsight Geithner could have managed expectations so that the public would have known beforehand that the Treasury Department was going to unveil only broad outlines of the plan, a source familiar with the matter said. On Tuesday, the stock markets plummeted minutes after Geithner began speaking.
Withholding critical details was a conscious choice by Geithner and his team, the official said in an interview. They wanted to avoid the mistakes of the Bush administration, which announced proposals before fully debating them and then quickly abandoned them when it realized they would not work.
Geithner and his staff also wanted to coordinate their proposals with lawmakers, the private sector and their counterparts overseas. This need for coordination is more than just rhetoric, officials said. If the United States develops a method to examine the books of banks and evaluate the real worth of their assets, it would likely affect financial firms around the world. Other countries would have to consider similar actions.
Senior administration officials said the market's reaction Tuesday should not be taken as a black mark on the administration's rescue plan. They added that investors severely sold off financial stocks because it became apparent that the administration was not going to give an overly generous aid package for banks.
Part of the reason expectations about the plan "got out of whack" was that the Treasury attempted to bring banking regulators into their strategy sessions, in an effort to muster a coordinated government response, a senior official said. The regulators advocated for particular ideas and leaked them to the news media. The markets, in turn, began to pin their hopes on such proposals. The core Treasury team, meanwhile, kept silent.
In coming weeks, a senior Treasury official said, the agency will release a timeline revealing when details will come about each provision in the rescue plan. The first announcement is set to come Wednesday when President Obama will unveil a foreclosure prevention plan. The official said the initiative, which is expected to spend $50 billion in rescue funds, will be "very detailed."
The weekend talks produced a statement that was more somber than normal for such international meetings. The group of nations acknowledged the "severe global economic downturn and financial turmoil" and agreed to keep financial institutions capitalized while finding solutions to the toxic assets on their books. The financial chiefs also pledged to enact a mix of spending and tax cuts to stimulate domestic demand.
No policy measures were adopted, however, allowing the countries to develop their own initiatives to address each problem identified during the gathering.
Several delegations said in interviews they were concerned that nations would adopt protectionist measures, which they said would hurt the global response to the crisis. In bilateral meetings, nearly every financial chief asked Geithner about a "buy America" provision that had been inserted into the stimulus package and were relieved to learn the administration had weakened the language.
The group also softened its language on China's currency exchange policy, which represented a departure for Geithner. Last month, he said Chinese officials were manipulating their exchange rate. Yesterday, Geithner said: "The United States is very much committed to working closely and cooperatively with China as we move together to address this global economic crisis."
Gloomy economic data this weekend signaled the distress in the world economy. Germany's economy, which fuels European growth, plummeted 2.1 percent in the fourth quarter compared with the previous quarter, the sharpest downturn since 1990. Italy and France reported downturns of 1.8 percent and 1.2 percent, respectively. Meanwhile, consumer confidence in the United States has fallen to the lowest levels in a generation.
Such grim numbers reflect the challenges facing Geithner.
"He's in a difficult spot," Flaherty said. "So are most finance ministers these days."