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Geithner tells bankers not to fear new financial regulations

By Brady Dennis
Washington Post Staff Writer
Tuesday, August 3, 2010; A10

NEW YORK -- Timothy F. Geithner, traveling salesman, swept through Manhattan on Monday making a pitch to skeptical bankers, business leaders and even the mayor.

His central message: Far-reaching financial regulations signed into law by President Obama last month aren't something to fear. Rather, they are the foundation of a stronger economy for the months and years ahead.

"Our system allowed too much freedom for predation, abuse and excess risk," the Treasury secretary told a crowd of 150 business executives, lobbyists and others during a speech at New York University's Stern School of Business. "But as we put in place rules for those mistakes, we have to strive to achieve a careful balance and safeguard the freedom, competition and innovation that are essential for growth."

Even as Geithner spoke to the mostly friendly crowd in Greenwich Village, scores of people in nearby skyscrapers were looking for ways to maintain large profits despite the new rules. Two miles south in the financial district, big banks have been examining everything from how to retool their massive derivatives operations to how to deal with new restrictions on proprietary trading, an activity in which banks trade on their own accounts.

At J.P. Morgan Chase, for example, more than 100 project teams are hard at work trying to anticipate the implications of the new rules and to adjust the firm's businesses accordingly. Similar efforts are underway at other firms, with lawyers in Washington and New York scouring the legislation for their corporate clients.

During his visit Monday, Geithner assumed the role of peacemaker, trying to thaw the chilly relationship that has developed between the Obama administration and the business community. He assured industry officials that the new rules -- many of which they spent millions of dollars and thousands of hours lobbying against -- would create stability while leaving room for businesses to prosper and grow.

He acknowledged the "frustrating, glacial pace" of federal rule-writing and vowed that regulators would move "as quickly as possible" to put new rules in place. He also said regulators would not "simply layer new rules on top of old, outdated ones."

Even on his goodwill tour, Geithner took time to preach a bit to the pinstriped executives. "Your core challenge is to restore the trust and confidence of the American people and your customers and investors around the world," he said. "Don't wait for Washington to draft every rule before you start changing how you do business."

He urged them to end hidden fees and not to push people into loans they can't afford. He urged banks to have the courage to increase lending. He implored firms to change executive pay "so you are not rewarding them for taking risks that could threaten the stability of the financial system."

"You can do all of that right now, even before the first new rule of financial reform is written," he said.

It hasn't been an easy sell. Banks and other firms have continued to pay hefty rewards to top executives. Firms have continued to sit on massive piles of capital, reluctant to hire new workers or ramp up lending until the economy shows more resilience.

Earlier Monday, Geithner had breakfast with New York Mayor Michael R. Bloomberg (I), who over the weekend called the financial overhaul law "a dream piece of legislation for lobbyists and for lawyers" on NBC's "Meet the Press."

"Nobody knows what the future is. That's not good," Bloomberg said on Sunday. "We have to end the uncertainty, and until you do that, I don't think you come out of this recession."

Bloomberg on Monday called Geithner "one of the most competent people in government," and aides said the pair discussed the broader economy more than the financial overhaul.

Later, Geithner met with business leaders assembled by the Partnership for New York City, an organization of top corporate executives. The private event was hosted by Larry Fink, co-founder of the investment firm BlackRock, and attended by Time Warner chief executive Jeffrey Bewkes, billionaire investor Wilbur Ross and other prominent figures.

Geithner's afternoon speech kicked off a public offensive in which top Treasury officials will venture into the financial world's nerve centers to make their case that the regulatory overhaul will actually help economic growth, despite the blistering criticisms from opponents that it will harm an already wounded economy.

On Wednesday, Assistant Treasury Secretary Michael Barr will take that message to the Charlotte Chamber of Commerce in North Carolina, and a day later Deputy Secretary Neal Wolin will swing through Boston and Philadelphia, where he'll speak at the Wharton business school of the University of Pennsylvania. Geithner on Monday taped an interview with ABC's "Good Morning America," and he is scheduled to give another speech later this week in Washington.

At NYU, Geithner said other tough reforms lie in the months ahead, namely an overhaul of government-backed mortgage giants Fannie Mae and Freddie Mac, as well as an international effort to impose new capital and leverage ratios for banks. As for the massive legislation that regulators are just beginning to implement, he sought to reassure business leaders and urge them to be partners with government rather than enemies.

"These reforms will be tough, but they will be toughest on those who took the greatest risks," he said, "on those who operated closest to the edge of prudence; on those who chased the market down and competed in a race to the bottom in standards and practices; and on those who made most of their profits in the most unsustainable of ways."

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