Transcript: Timothy Geithner Confirmation Hearing
Testimony Before Senate Finance Committee
SEN. MAX BAUCUS (D-MONT.): The committee will come to order.
Franklin Delano Roosevelt once said confidence thrives on honesty, on honor, on the sacredness of obligation, on faithful protection and on unselfish performance. Without them it cannot live.
The nominee before us today has pretty much been nominated to restore confidence in the U.S. economy. It won't be easy. To restore this confidence we must restore faith in the honesty and transparency of financial institutions.
We must honor the obligations to which we have committed ourselves, and we must protect the principles on which our economic system in based.
In these troubled times it is also essential that the American people and the Congress have confidence in the nominee and his leadership. As a key member of President Obama's economic team, we must believe that he can help put our economy back on track.
This trust must be earned. And once earned, this trust must be maintained.
Close scrutiny of Mr. Geithner's tax returns uncovered several errors, and the questions have arisen regarding his employment of household help. I expect him to answer questions regarding these issues honestly and completely.
These are disappointing mistakes, but after discussing them with Mr. Geithner, I believe them to be innocent mistakes. I believe that Mr. Geithner has sufficiently corrected the errors. I know a man of Mr. Geithner's talent and dedication will be meticulous on these points in the future.
More broadly, I also suspect Mr. Geithner to give the American people and Congress the respect that they deserve.
The secretary of the treasury cannot ask Congress to make middle of the night decisions that cost taxpayers hundreds of billions of dollars. The secretary cannot refuse to explain why immediate massive action must be taken without time for consultation or discussion.
The secretary cannot ask Congress to commit massive funds on the basis of a three-page proposal.
If ever there was a time for those kinds of actions, that time has passed. Rather, we must have faith that the secretary's actions and those of the Treasury Department will be open, and it will be transparent.
We must know that the secretary will help enforce the laws passed by Congress. The secretary must protect the fundamentals of our economy, and the secretary must unselfishly give up himself to successfully complete the task at hand.
The global economic crisis requires unprecedented action. The Troubled Asset Relief Program, the TARP, authorized $700 billion to stem the financial crisis.
When Congress authorized this money, we promised the American people that the U.S. government would be good stewards of their hard- earned tax dollars. The secretary must ensure that these dollars were not spent in pain.
We also promise that we would keep the TARP program honest. I fought for a special inspector general to oversee the program that was enacted. The secretary must ensure that the special IG has access to all of the information and resources that he needs to get the job done.
And in the midst of this financial crisis, there's no room for selfishness. I worked to include limits on executive compensation in TARP, and I expect Mr. Geithner to vigorously enforce these limits. We cannot allow taxpayer money to fund golden parachutes to some of the very people responsible for this crisis.
We must also work together to protect hard-working Americans from being forced out of their homes. The Emergency Economic Stabilization Act requires the Treasury Department to work with banks to stem mortgage foreclosures, and I expect Mr. Geithner to carry out this mandate.
BAUCUS: I urge Mr. Geithner to find ways to help small businesses. In Montana, all businesses are small businesses. They are struggling. They are feeling the brunt of both the credit freeze and the economic slump.
Small businesses are the engine of local economies. Collectively, they are too big to fail. We must ensure that TARP does not ignore them.
In addition to administering TARP, Mr. Geithner will be responsible for overseeing the Internal Revenue Service. The IRS employs nearly 100,000 people. It is responsible for collecting the tax revenues that fund our government.
We owe it to all Americans to ensure that all taxpayers file their returns honestly and in a timely fashion. Especially now, the IRS must collect all revenues it is owed, and we must pursue those who evade their taxes by improperly moving their assets offshore.
These are all important priorities, but the health and prosperity of the American economy cannot be solved with domestic policies alone. We must engage with the world's economic powers. Engage with them. We must urge them to reform their policies, as well as our bilateral and multilateral relationships.
I think for most of China. Secretary Paulson established the United States China Strategic Economic Dialogue, otherwise known as the SED. Continuing a good, strong, vigorous, constructive dialogue similar to the SED I think is critical. And we can waste no time doing it.
Assuming such a dialogue is not just talk. It's about reforming our relationship to unwind unsustainable balances. It's about getting our relationship on a firm footing. And it's about finding the balance that is sustainable and mutually prosperous.
We also need to reform our relationship with Cuba. The secretary oversees the Office of Foreign Asset Control, otherwise known as OFAC. OFAC has allocated way too much precious time and money and effort to enforcing our trade embargo with Cuba.
This makes it difficult for Montana farmers and farmers in other states to sell their products in a market 90 miles from the United States. This also squanders resources that OFAC could use to fight terrorism -- terrorism financing around the globe. The secretary's responsibilities are formidable. I have confidence that Mr. Geithner is up to the job. I have confidence that he will address the important obligations that he will inherit with honesty and honor. And I have confidence that, with the help of his unselfish performance, America will overcome these troubled times and emerge with renewed strength.
SEN. CHARLES GRASSLEY (R-IOWA): Congratulations to the nominee -- not so much congratulations to the office he's been selected to go to, but because I know it has a great deal of personal sacrifice and financial sacrifice.
Thank you, Mr. Chairman, for the hearing.
Today we perform one of the most important functions of this committee. We examine the qualifications of the man nominated to be the next treasury secretary.
I come into this hearing with a profound sense of concern and worry about the future of our financial system. Yesterday I was heartened to hear President Obama say, quote, "What is required of us now is a new era of responsibility."
For President -- that's the end of the quote -- for President Obama, that era of responsibility will begin with his Cabinet, and I look forward to helping facilitate that.
GRASSLEY: Of course today most people are worried about a financial crisis. But my worry has been deepened by my dissatisfaction with the decisions made to alleviate that crisis. And by what I have learned about certain people entrusted to make those decisions.
On October the 1st of last year I voted for the Emergency Economic Stabilization Act, which created the Troubled Asset Relief Program or TARP by acronym. It was not an easy decision to support that legislation, but the financial panic at the time led me to believe that something needed to be done.
Plus the legislation was important to many taxpayers and to Iowans specifically because that was added to the TARP bill. However, last Thursday I voted against allowing the secretary of treasury to access to access the second half of the 700 billion in bailout funding.
Instead of using the first payment of 350 billion to purchase troubled assets as the name Troubled Asset Relief Program suggested, and how it was sold to us, the money has been erratically and arbitrarily distributed in a monstrous act of government intervention and ownership over our financial markets.
In addition to the TARP program, taxpayer's dollars are on the line in bailouts of Bear Stearns and AIG. The Federal Reserve has loaned money to three special purpose vehicles, which are all limited liability companies that use federal funds to purchase -- I should say fed funds -- to purchase troubled assets.
Maiden Lane I, accepted residential and commercial owns, as well as derivatives, including credit default swaps from Bear Stearns in connection with its purchase of JP Morgan. In similar deals related to AIG rescue Maiden Lane II hold residential mortgage backed securities, while Maiden Lane III holds a collateral date obligation purchased from the credit default swap counterparties.
It would seem that the fed's investment in these SPVs is based on the valuation of assets, which was conducted in all three cases by Black Rock Financial, who also I understand, now manages these assets.
I championed the need for Special Inspector General at TARP and supported the various Congressional oversight duties including the mandate for GAO reports on the program, which at least shed some on light on the activities and transactions under the TARP. Similar transparencies and oversight of the bailout conducted outside of the TARP is also needed.
In addition to these concerns about how the TARP and other bail -- bailouts have been managed to date, we have to consider what we have learned about the nominee's tax history. The nominee's troubled tax history was made public last -- last week in a bipartisan finance document. And I think I'm in -- accurate in saying that we have done it the same way that Senator Baucus and I have been leaders of this committee to make that information public, if the nominee decided to go forward. I ask unanimous consent that the committee staff memorandum released to the members on Tuesday, January the 13th, along with supporting documentation being printed in our hearing record.
BAUCUS: No objection.
GRASSLEY: Since the report was issued, additional questions have arisen specifically about the nominee's failure to pay self employment tax on his IMF income reported on his tax returns for the years 2001 through 2004. And the press has documented many of those questions.
So Mr. Chairman I would ask unanimous consent to enter five articles and editorials in the hearing record.
BAUCUS: No objection.
GRASSLEY: Over the past few years this committee has spent a lot of time examining the tax gap. The tax gap is the difference between what taxpayers legally owe and what they actually pay. The nominee has been found to be a tax gap participant. In addition to failing to pay self employment taxes while working for the International Monetary Fund, the nominee's returns contained other irregularities that ended up to his owing $48,268.00 in taxes and interest in the IRS.
When asked by staff and members of the committee to explain these irregularities, the nominee has offered many excuses that range from statements that he should have known, to explanations that if only his accountant had warned him he would have done the right thing.
A troubling fact has emerged, the IRS audit of 2006 yielded a demand by the IRS that nominee pay self employment taxes for the years 2003 and 2004. The nominee paid the taxes due for those years. During the audit, it became clear that the same liability existed for the nominee's 2001 and 2002 returns. The IRS, however, was barred by statute of limitations from collecting for those years. Shortly after President Elect Obama expressed an intent to nominate him, on the advice of the transition team, the nominee amended his 2001 and 2002 returns and paid the amount owed. Furthermore, the nominee received tax allowances from the IMF -- the IMF to pay the difference between the self employed and employed obligations of Social Security tax.
In considering the nomination, this committee has a difficult road to travel. There are some who believe that the nominee's actions can be explained as simple and common mistakes. To others, he is possibly the only man for the job of healing the recession that we have before us and a very fractured economy.
His involvement and implementing the TARP gives him unique insight into how we have gotten to where we are today. To some he isn't merely the best choice, to some he is the only choice. On the other hand, we need to consider how much the nominee's tax history could reflect on a Secretary of Treasury. As secretary the nominee would be in charge of the IRS. If confirmed would the nominee be effectively leading his department. How much does his troubled tax history reflect on his judgment as a decision maker? These are some of the issues that this committee must consider.
So I propose to the nominee, are you the general growing on your financial sector expertise, who will marshal the financial troops and assets of the Treasury Department to lead our nation to prosperity? Or are you the general with this troubling tax episode of the past who will lead the nation's tax policy and administration system? These are two key questions that we face today.
I look forward to the testimony.
Thank you Mr. Chairman.
BAUCUS: Thank you very much, Senator. And now as our witness is from the Empire State, notice that one of the members of our committee also from the Empire State is here, I recognize him to introduce him to the committee.
SEN. CHUCK SCHUMER (D-N.Y.): Thank you, Mr. Chairman.
First, thank you for you outstanding leadership of this commitment.
And I want to thank Senator Grassley, I know he is very sincere about the difficulties he is weighing.
It's my privilege to be here today to introduce Timothy Geithner as President Obama's nominee to be treasury secretary. Mr. Chairman, in these times as our financial system is sailing into uncharted and turbulent waters there is no navigator more suited for this job by way of intelligence, experience, inclination, and temperament than Tim Geithner.
Tim has made some mistakes, which he has freely admitted and corrected. But these errors pale before the myriad mistakes made by the operators of financial institutions and government regulators overseeing them. We need the very best, not the second best person in treasury to correct those mistakes.
Tim's career in government began 20 years ago as a staffer at Treasury. His abilities quickly launched him up the career ladder and by the mid-1990s he was Senior Crisis Manager with then Secretary Rubin and then Deputy Secretary Summers and helped guide the U.S., and indeed the global financial system, in -- through a series of international financial crises, including the Asian financial crisis in 1997 and 1998.
For the past six years, Tim has served as President of the Federal Reserve Bank of New York. From that position, he's tried to raise awareness of the risks posed to the economy of the current crisis. And to call Congress' attention to the inadequate powers and authorities of the Treasury Department and the Federal Reserve to deal with this economic maelstrom and brave new economic world.
Far before many other regulators, Tim had recognized the extent of the danger that our economy faced and was trying to raise awareness. In the aftermath of the Bear Stearns failure Tim noted the current crisis was so severe that it was, "not something that market can solve on its own."
And in July he called on Congress to establish a legal framework for dealing with the failures of non-bank financial institutions. Had we heeded his advice then, the Treasury Department and the Federal Reserve might not have faced the failure of Lehman Brothers with an empty regulatory toolbox.
Tim has also been a leader on financial regulatory reform. In September of 2006 he led other regulators in calling for enhanced regulation of hedge funds. In April of 2008, Tim called for a major overhaul of this system, not just in structure but also in the way regulators do their jobs and the policies that we implement to ensure stability.
He noted that, "Our objective should be a system that preserves the unique strengths of our financial markets in providing individuals and entrepreneurs access to capital and credit, but with a greater capacity to withstand stress."
However, as takes on this monumental position there are few things he must keep in mind. First, he must lead the Treasury Department in a full reexamination of the TARP program, as you stated Mr. Chairman, and the other governmental responses to the crisis to ensure that they are achieving their goals of stability, promoting lending, and protecting taxpayers.
The previous TARP program gave the banks too much dessert before it made them eat any of their vegetables. Secretary Geithner must be the responsible parent and restore some balance to this situation. I have confidence he will.
Second, and we know he'll do this since he's already started, Tim must lead a national -- in fact, an international -- conversation about the structure of financial regulation. Without major reforms to the way that we and others oversee financial institutions, the history of the last 18 months is doomed to repeat itself.
And finally, and perhaps most difficult of all, Tim must help guide the U.S. economy back on to stable long term footing. The satirical newspaper The Onion recently ran a headline that struck a nerve, because I think it's all too true. It read, "Recession Plagued Nation Demands New Bubble to Invest In."
The fact of the matter is that for far too long this country has relied on easy credit to support its growth. We need to redevelop stable long term industries that can survive the ups and downs of the business cycle. We need to reinvigorate American manufacturing, stimulate American savings, and end our national addiction to debt.
We cannot be a country that imports more than we exports, borrows more than we save, consumes more than we produce. It will not be easy. But I'm confident that if we commit ourselves to this task under Tim's hand on the tiller American will emerge as the strongest nation on the planet for the next 50 to 100 years.
In closing, Mr. Chairman, Tim faces a daunting set of challenges and tasks but he's uniquely qualified for this position. And I'm proud to say that I will strongly support his nomination.
I'd like to close by thanking him for his willingness to continue serving his country in troubled times. God knows that he's paid his dues and then some over the past 18 months, not to mention the past 20 years.
And while he could easily go to the private sector and work less hours for many than he'll make as government employee, he's chosen to accept the challenge the President Obama presented to all of us and to continue to devote himself to serving his country and striving to make the world economy a better and safer place. For that, I commend him.
Thank you, Mr. Chairman.
BAUCUS: Thank you Senator. Thank you for that introduction. I'd now like call on the Honorable Paul Volcker, former Chairman of the Federal Reserve Board for an introduction.
PAUL VOLCKER: (OFF-MIKE)
BAUCUS: Mr. Chairman, you might want to pull your microphone a little closer to you, perhaps turn it on first.
VOLCKER: That might help.
BAUCUS: That might help, thank you.
VOLCKER: It's even more of privilege no you can hear me to appear before the committee.
VOLCKER: And to support Tim Geithner's appointment as Secretary of the Treasury.
You know a good many years have past since I last appeared before this committee, but during all of that time there's never been a more critical time for the American economy and particularly for financial stability. And that's true not just in the United States, but globally.
To put it starkly, we are in a serious recession with no end clearly in sight. The financial system is broken. It's a serious obstacle to recovery. There is no escape from the imperative need for the federal government to come to the rescue to right the economic and financial ship estate.
Over the 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.
Obviously commitments made of that magnitude raise very large questions. They're not only questions of avoiding waste of the taxpayer's money, important as that is, they're also risks of undermining confidence in the dollar and raising fears of future inflation. They need to be recognized.
VOLCKER: All that underscores the importance of this committee's responsibilities, and even more, it underscores particularly the role of a new secretary of the Treasury. It is that person that necessarily will carry the principal responsibility within the administration for developing, explaining, and implementing a program to restore financial stability and restructure the financial system.
Now, today, the nomination of Timothy Geithner as secretary of Treasury awaits your advice and consent. After many years in the Treasury and the Federal Reserve, I have had some appreciation of the nature of the position of secretary of Treasury and the qualities it demands. I also believe I have good grounds for judging the qualifications of Mr. Geithner.
He occasionally reminds me that our paths briefly crossed some 25 years ago when I addressed his graduating class at Dartmouth. Now I can't claim that I provided any impetus or inspiration for his career. In fact, my memory is that the public address system closed down shortly after I began my address. But what has become amply clear in the ensuing 25 years is Tim Geithner's commitment to public service. His career path up through the ranks of the Treasury is a model. It's a model I'd like to see inspire and be emulated by others attracted to public service. And I think it's also true that he is exceptionally well placed to enhance the professional strength of the Treasury which should be a matter of some concern to this committee.
More immediately relevant has been the years Mr. Geithner spent as president of the Federal Reserve Bank of New York, a position that I once held. The New York Fed, by its nature, by its location, stands at the hub of the world of finance. It is the agent of both the Federal Reserve System and the United States Treasury interacting with the markets, with major financial institutions, and with foreign official counterparts, a point you made, Mr. Chairman, in emphasizing that this is a global problem, not simply a national problem.
The role of the bank is vital in time of crisis and, as you know, we are in the midst of the mother of all financial crises. As point man, Mr. Geithner had a key role and has been recognized within the Fed, within the Treasury, and by market participants and by officials of other countries. He's not only articulate in public, but well respected in the more restrictive world of scholars and economists concerned with finance.
Now I can't reasonably claim that any one person is absolutely indispensable, but as you address this nomination -- as you address his nomination, consider that Mr. Geithner brings unique qualifications in terms of hands-on experience, recognition in financial markets, and the confidence in which he is held by the new president of the United States.
You have a constitutional duty to confirm his nomination and to exercise that duty with great care. I do hope that that process can be completed with some dispatch so that President Obama can have his full team in place to deal with the pressing financial crisis that simply will not wait.
Thank you, Mr. Chairman.
BAUCUS: Thank you, Mr. Chairman.
I now turn to witness Mr. Geithner.
Mr. Geithner, your prepared statement will be automatically included in the record. I ask you to proceed for about five minutes or so. Before you proceed, is anyone here in your family that you'd like to introduce?
TIMOTHY GEITHNER: Thank you, Mr. Chairman. Thank you, Mr. Chairman.
I'd like to introduce my -- my wife, Carole, staying -- sitting behind me, and my father, Peter Geithner, on my left.
BAUCUS: Well, could you both stand, please?
Thank you very much for your participation and being a part of this team, too. Thank you very much for your participation.
OK. Mr. Geithner, you can proceed.
GEITHNER: Chairman Baucus, Ranking Member Grassley, and members of the committee, it is a great honor for me to stand before -- to sit before you today.
I want to thank you for meeting with me over these last few weeks and for giving me a chance to hear your interests and your concerns.
I am deeply grateful to the president for asking me to lead the Treasury Department of the United States at this critical moment in our nation's history.
And I am particularly grateful to my wife, to my family for all their support and for their sacrifice.
I want to thank Senator Schumer and Paul Volcker for their kind words this morning. I'm very grateful to you -- to you both for sitting -- sitting with me -- with me here today.
Throughout my career, I have had the great privilege of serving our country in institutions responsible for U.S. economic policy. In these roles, I have learned some very important lessons about government and about economic policy.
I believe that confidence in the strength and integrity of our financial system, confidence in our commitment to fiscal prudence, and confidence in the value of our currency are absolutely critical to the fortunes of all Americans. I believe that markets are central to innovation and to growth, but that markets alone cannot solve all problems. Well-designed, strongly enforced financial regulations are absolutely essential to protecting the integrity of our economy.
I also believe that as America's economic fortunes become ever more closely tied to those of the rest of the world that we need to invest more at home in helping Americans deal with the challenges of trade and technological change. And finally, I believe that our national security depends critically on our economic strength. We can have a great and positive impact on the global economy, but only if the quality of our ideas and our actions win the support of other nations.
We now confront extraordinary challenges: a severe recession here and around the world; a catastrophic loss of trust and confidence in our financial system; unprecedented foreclosure rates; small businesses struggling to stay afloat; millions of Americans worried about losing their jobs and their savings; a deep uncertainty about what tomorrow holds.
At the food bank where my wife and son volunteer, the lines are long and getting longer, and these things are happening across America.
GEITHNER: Our test is to act with the strength, speed, and care necessary to get our economy back on track and to restore America's faith in our economic future. This will require action on four fronts.
First, we must act quickly to provide substantial support for economic recovery and to get credit flowing again. The history of financial crises is a history of failures by governments to act with the speed and force commensurate with the severity of the crisis. If our policy response is tentative and incrementalist, if we do not demonstrate by our actions a clear and consistent commitment to do what is necessary to solve the problem, then we risk greater damage to living standards, to the economy's productive potential, and to the fabric of our financial system.
Senators, the ultimate costs of this crisis will be greater if we do not act with sufficient strength now. In a crisis of this magnitude, the most prudent course is the most forceful course.
Now the American Recovery and Reinvestment Plan that is now before the Congress will meet that test. It provides powerful and direct support to help get people back to work; to encourage private investment; to break the cycle currently crippling our economy, a cycle in which concern about growth hurts investment and spending, causes further job losses, and makes it harder for families and businesses to get access to credit. This plan, the American Recovery and Reinvestment Plan, is a critical part of the solution, but it has to be accompanied by aggressive action to address the housing crisis and to get credit flowing again.
Last fall, Congress passed the Emergency Economic Stabilization Act. Your action -- and I know this was a difficult decision for many of you at the time. Your action helped prevent financial catastrophe, and the actions of the Senate last week to authorize additional resources will enable us to take additional steps to reinforce recovery.
President Obama and I believe that this program needs reform. I know there are serious concerns about transparency and accountability, about -- confusion about the goals of the program, and a deep skepticism about whether we are using the taxpayers' money wisely.
We have to reshape and redesign this program to ensure there is credit available to support recovery. We will do this with conditions to protect the taxpayer and the necessary transparency to allow the American people to see how and where their money is being spent. This program -- this financial program -- is absolutely essential to recovery, and we need to make it work.
Second, as we move quickly to get our economy back on track and to repair the financial system, we must make investments that lay the foundation for a stronger economic future. The strength of the recovery will depend critically on the investments and reforms we initiate now to make our economy more productive in the future: the reforms to expand access to health care and reduce its cost, to move towards energy independence, to sharpen and deepen the skills of American workers, and to modernize our infrastructure. These investments will make our economy more productive and more competitive in the future.
Third, our program to restore economic growth has to be accompanied -- and I want to emphasize this -- has to be accompanied by a clear strategy to get us back as quickly as possible to a sustainable fiscal position and to unwind the extraordinary interventions taken to stabilize the financial system. We need to demonstrate with clear and compelling commitments now that, when we have effectively resolved the crisis and recovery is firmly established, that we as a nation will return to living within our means.
Finally, we must move ahead with comprehensive financial reform so that the U.S. economy and the global economy never again face a crisis of this severity.
Senators, in this crisis, our financial system failed to meet its most basic obligations. The system was too fragile and unstable, and because of this, the system was unfair and unjust. Individuals, families, and businesses that were careful and responsible were damaged by the actions of those who were not. So we need to move quickly to build a stronger, more resilient system with much greater protections for consumers and for investors, with much stronger tools to prevent and respond to future crises.
We've experienced a great loss of faith in our economy, but we have not lost the most fundamental of American abilities: the ability to adapt, to change, and to reform. This will take time, it will require action on a scale that we have not seen in generations, and we will have to keep at it until we restore the confidence of Americans and of the world in America's economic leadership.
This is my commitment to you, and this is President Obama's promise to the American people. We are a strong nation with great resources. We can meet these challenges. Our shared goal is a healthy, more stable, and more competitive-free-market economic system that can once again do what it does best: to encourage people to invest and invent, to innovate and create jobs, and to build stronger communities and better lives.
I want to say how grateful I am to my colleagues at the New York Fed and at the Federal Reserve System. Like the career staff of the Treasury, they are an exceptionally talented and dedicated group of public servants. They are brave, creative, and pragmatic, and it has been my great privilege to work with them. Senators, before I finish, I want to address directly the concerns many of you have raised about the mistakes I made in preparing my tax returns. These were careless mistakes. They were avoidable mistakes, but they were unintentional. I should have been more careful. I take full responsibility for them. I have gone back and corrected these errors and paid what I owed. I want to apologize to the committee for putting you in the position of having to spend so much time on these issues when there is so much pressing business before the country.
If you and your colleagues give me the opportunity to serve as secretary of the treasury, then I will do everything I can to justify your trust and your confidence.
GEITHNER: Thank you.