Treasury secretary defends, explains response to crisis
March 19, 2009
STORY HIGHLIGHTS
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(CNN) — With the U.S. economy sputtering and controversy over AIG bonuses boiling, Treasury Secretary Timothy Geithner has been in the spotlight lately.
President Obama has expressed confidence in Timothy Geithner’s role as Treasury secretary.
In an interview Thursday with Ali Velshi, CNN’s chief business correspondent, Geithner talked about how the government has responded to the crisis, what the U.S. will look like after it, and he touched on his leisure and family life
The following is a transcript of the interview, which has been edited for length and clarity.
Ali Velshi: Mr. Secretary, thanks for sitting down with us.
Timothy Geithner: Absolutely.
Velshi: The president has referred to you as uniquely qualified for the job of treasury secretary. What does he mean by that?
Geithner: You know, I’ve had this great privilege in life, which is I spent my entire professional life working in institutions that are responsible for American economic policy. I started in the Treasury in 1988, spent 12 years of my life there.
This is an enormously talented group of people, both here and at the Federal Reserve, where I also worked for some time. And I’ve had the great privilege of working with great, great men and women in some of the most challenging financial crises of the last 20 years.
Velshi: And you’ve been through some of those. Did they equip you well for the crisis that we’re in right now?
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Treasury Secretary Timothy Geithner gives a rare interview to CNN’s Ali Velshi.
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Geithner: You know, neither our country nor the global economy has been through anything like this in generations. So this is an enormously complicated, challenging period. But our response is going to be shaped by the lessons of all of those past crises.
And we know now how to make sure that governments do enough, soon enough, to help limit the damage in these kinds of crises and make sure that recovery comes sooner than it otherwise would.
You know, the great lesson of these crises is that governments typically underestimate the costs. They wait too late to escalate. They move too slowly, too tentatively, first, and we’re not going to make that mistake.
Velshi: What about the criticism that maybe we’re moving too fast? It’s a criticism that comes out of the stimulus bill. It’s a criticism that comes out of the bailout. Did we move too fast to dot all of the I’s and cross the T’s?
Geithner: I don’t believe so. Again, we’re starting with these just enormously challenging inherited problems. And we don’t have the luxury of waiting. And everything we’re doing is designed to make sure that we’re doing everything possible to make sure that the average working American, the small businesses across the country, is less vulnerable to additional damage and pain.
And so they are able to get back to work, expand their small business. And we need to move.
Velshi: When you’re sitting at your desk, or you’re meeting with people, and you’re discussing this crisis that we’re in, and you’re drawing on your experiences, the places you’ve lived, the things you’ve learned, the crises that you’ve been through, what are the things that are most coming to mind that are experiences you’ve been through that inform your decision-making today?
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Geithner: Be candid about the challenges. Assess them carefully and honestly. Don’t underestimate the potential risk. Understand how important the obligation is we share to make sure that what we’re doing is targeted at the working families and businesses across this country who are suffering so much from this.
You know, financial crises are brutal and indiscriminate in the pain they cause. And they have this basic tragic unfairness: that people who are careful and responsible in their personal and professional judgments are being damaged by the actions of those who were less careful and less prudent.
And it is an important obligation of government to make sure that we’re moving very, very quickly to try to address those challenges.
Velshi: Now you must know that … there are a lot of people who don’t think that’s the case. They think that somehow, those who have been responsible for things have been rewarded. How can you do a better job of communicating that you’re focused on individuals who haven’t done the wrong thing?
Geithner: I think the American people are just enormously frustrated and angry that they find themselves in this position. But I want them to understand that everything we’re doing is designed to make sure that we’re getting the credit necessary to help them do what they need to do.
Put their kids through college, buy a new car or a new home, to finance some huge health care expense, or a business that wants to change an idea into a growing company, everything is motivated by the basic obligation.
And … completely understand and share the basic frustration and concern that the American economy, the most productive economy in the world, now faces this enormously difficult set of challenges because of a long period of basic excess. …
People borrowed way more than they can afford. The financial system took risks they did not understand. And this has put us in a position where we’re facing this deepening recession.
And it is enormously important that working with the Congress, we do everything necessary to bring recovery back on track.
Velshi: Let’s discuss this. If we were living beyond our means, as individuals, as companies, and as a country, we were consuming more than we were producing …
Geithner: We were.
Velshi: … What does the adjustment feel like now? What will it feel like to Americans? What will the change be to the people who are watching this today? What will this new economy look like after it has adjusted and all of your work has been done?
Geithner: We’re going to emerge stronger because of the experience of the spirit of the time. And we’re going to make sure that as we come out of this, we’re making the kind of investments necessary to make this economy more productive with prosperity more broadly shared.
And the president’s budget lays out this enormously consequential set of improvements in educational outcomes, in improving quality of health coverages and growth in health care costs, in moving us to a more energy-efficient, greener economy, in improving basic infrastructure.
These are things governments need to do, and that our government has not been doing well. And that will help lay the foundation for a stronger economy in the future, again, where the gains are more broadly shared.
Velshi: It probably is in the interest of every American who is listening to this to know that you have some way of letting off steam. We probably all want you to be able to run a long day like you do and deal with all of these things.
How do you deal with the stress that you’re faced with every day?
Geithner: I have this great benefit and privilege. I work with enormously talented people, both in this department, at the Federal Reserve, and your country’s financial agencies, leadership in Congress, and, of course, with the president and his economic team. And that is enormously important.
But I do — I exercise, I talk to my family as much as I can, make sure that I’m in touch with what they’re going through in their lives, and the important thing, though, is I work with this enormously talented group of people here.
Velshi: I know this isn’t really about your family, but just tell us a little bit about them.
Geithner: I — my wife is a social worker. I have two kids in high school, go to public high school … outside of New York. My daughter is a senior. My son is a freshman. And, you know, it’s a great thing in my life. They’re the most important thing in my life.
And I also — my father was a Navy pilot, spent his life working on development issues. My mother is a teacher — piano teacher. Because of them and their work, I grew up outside of the United States, and I learned early on as a kid really the enormously important role that America played in the world, and decided early on watching America through the eyes of the world that I wanted to work with my — for my country.
And I wanted to have the chance to help improve the quality of government for the American people.
Velshi: And you’ve worked for your country for many years.
Geithner: I have. I started really my first — almost my first real job out of graduate school was here at the Treasury. …
Velshi: How do you deal with the fact that you’re so business and now you’re away from your family a bit?
Geithner: That’s very hard. But I talk to them many, many times a day and try to keep in touch. And I see them every time I come. There is enormous burden on your family, you know, a very hard thing to put them through.
But they understand what we’re doing here is very important. And they, of course, deeply believe in this president. … But it’s … hard for them.
Velshi: You come to the gym here every day.
Geithner: I do. Not every day, but as many times as I can. …
Velshi: You — I know when you were at the New York Fed, you used to like to play basketball, too.
Geithner: Look, I do any sport. I will play any sport I can any time … any chance I get. I don’t have the chance now to play much of it, but I do as much as I can.
Velshi: This would be a tough job regardless of the distractions, but are the distractions right now, are they impeding your ability to get your job done?
Geithner: No. I mean, you know, this comes with the job. You know, we’re making enormously difficult judgments to get out of the mess we’ve found ourselves in when we started. …
You know, my obligation is to do what’s right for the financial security, economic security, of the American people. And we’re on it. …
Velshi: What about the calls for you to resign?
Geithner: You know, I — again, I think this just comes with the job. If this was not challenging, it wouldn’t be consequential. And I feel this deep sense of personal responsibility and obligation and, really, opportunity to work with this president, this Congress, to try to make this economy stronger, to make sure our financial system never goes through this again.
People are going to disagree with some of the choices we make, but we have to act. We have no choice but to move. …
Velshi: Where do you stand philosophically on whether you need to protect the interests of investors or shareholders versus working Americans? Sometimes those interests are the same, because people are invested in the stock market through their 401(k) or their IRA, but sometimes they seem very different. Where do you fall?
Geithner: Nothing we do is for the benefit of banks or the broad investor — investment banks. Everything we do is for the people and the businesses that depend on the financial system and the banks that are critical to it.
So what we’re trying to do is to, again, to make sure that we’re providing the support necessary to get credit flowing again on terms that are going to protect the taxpayer, make sure that our assistance is not going to … unduly benefit the people that helped get us in this mess.
Velshi: You’ve probably heard the expression many times about AIG, “too big to fail.” What do you think?
Geithner: You know, this is a terribly damaging, frustrating position to be in. You know, our country did not have in place a set of adequate constraints on risk … across the financial system.
AIG was allowed to build up to the point where its future threatened the entire stability of the American financial system. That should never have happened, should never happen again. And we are doing our best to work through this in a way that’s going to, again, protect the people that bought these insurance products, average Americans, municipalities, from the consequences of distress, in this case.
And we’re going to work very actively to make sure we have a framework for dealing with these problems in the future so it doesn’t happen again.
Velshi: One of the issues CNN and other news organizations have reported since late January, that AIG was going to pay about $450 million to about 400 employees of the AIG financial productions unit, which is really at the heart of AIG’s problems, an otherwise healthy company.
There is some dispute as to who knew when what. AIG’s CEO said that you might have known about this earlier than you did. When did you learn about this, and what did you learn?
Geithner: I was informed by my staff of the full scale of these specific things on Tuesday, March 10th. And as soon as I heard about the full scale of these things, we moved very actively to explore every possible avenue — legal avenue — to address this problem, to make sure that, again, the assistance we were providing was not going to unduly benefit these people.
And, you know, we moved very quickly. We’ve made it clear that the payments going forward had to be renegotiated, and we’re going to make sure that the taxpayer is compensated for any payments we can’t recoup. And we’re exploring all legal means to recoup those payments.
Velshi: But you’re pretty certain on the advice that you’ve been given that we can’t just legally not give these — or get any of these bonuses back?
Geithner: Absolutely. That our best judgment at the time was we had no legal ability to block a set of those payments, but those that we had the capacity to affect, we insisted or renegotiated.
In any case, we’re going to go back and try to recoup the payments that were already made [that] we had no legal ability to block at that time.
Velshi: As far as you can remember, though, you did not know about this before March 10th?
Geithner: On Tuesday, I was informed about the full scale and scope of these specific bonus problems. And again, as soon as I did — but, you know, it’s my responsibility, I was in a position where I didn’t know about those sooner, I take full responsibility for that.
The people doing this, the Fed and the Treasury people, are working very closely together. They’re … dealing with an enormous set of complicated problems. They have enormous integrity and dedication. They’re working very hard.
And they’re going to help us move forward to make sure that, again, we’re protecting the interests of the American people.
Velshi: Let’s just talk a little moment again about those payments and the legal ramifications of doing anything about it. Sen. [Chris] Dodd says that he had a clause that was put into the stimulus bill that basically allowed these payments to be made to people at AIG in this particular unit, and he says that somebody at Treasury asked him to put it in.
Geithner: Let me just start by saying that [Senate Banking Committee] Chairman Dodd has played an enormously important leadership role in this, and he’s doing the right thing in trying to make sure that the assistance we provide doesn’t go to benefit people that shouldn’t benefit from these things. And I am enormously impressed by the importance of what he’s trying to do in this case.
Velshi: But somebody — have we figured out who told him to put this clause in?
Geithner: This provision? We expressed concern about this specific version. We wanted to make sure it was strong enough to survive legal challenge. But we also worked with him to strengthen the overall framework, and his bill has this very important provision we’re relying on now to go back and see if we can recoup payments that were made that there was no legal ability to block.
Velshi: But inadvertently, might somebody at Treasury have told Sen. Dodd to do something that has now resulted in these payments not being able to …
Geithner: No, again, what we did is just express concern about the vulnerability of a specific part of this provision, the legal challenge, as you would expect us to do, that’s part of the legislative process, but again, his bill also has this very important provision that allows us to go back and see if we can recoup these payments, and we’re going to explore that, but in any case, we’re going to make sure that the American people are compensated for any payments we can recoup.
Velshi: Do we know who in Treasury had this conversation with whomever on the banking committee?
Geithner: Treasury staff were working [with] Sen. Dodd’s staff throughout this process. Again, that’s part of the legislative process.
Velshi: But you weren’t involved in that directly?
Geithner: I did have with other officials, some conversations with Chairman Dodd as he was going through this process, but other provisions.
Velshi: So not about this particular one. It wasn’t you telling …
Geithner: No, but I’m not sure that’s relevant because Treasury staff did express concern about whether this provision was vulnerable to legal challenge.
Velshi: OK.
Let’s talk a little about, obviously the stuff about AIG has hit fever pitch, and now, we’ve heard that Fannie Mae, another company under government control, plans to pay four executives retention bonuses of between 400 and 700 [thousand dollars], 611,000 [dollars] each. Freddie Mac might be planning something similar.
What do we do about this?
Geithner: This is an enormous problem across the entire financial system. It’s just important to recognize that part of what got us into this mess was a set of compensation practices that got completely divorced from reality and bore no resemblance to risk, and … we are going to fix that going forward, we have to fix that going forward, but apart from the reforms we’re bringing to the system going forward, we’re going to make sure that taxpayer assistance into financial institutions doesn’t go to benefit unduly the executives who were part of getting us into this place.
Velshi: How do we deal with what seems to be tone deafness on Wall Street? How can these announcements come out? How are people so divorced from the reality of how angry Americans are about this?
Geithner: It is enormously damaging to everything we’re trying to do. All this is is feeding this great loss of confidence in the quality of judgments about the individuals presiding over these financial institutions, and they’re going to have to demonstrate a greater sense of responsibility going forward if they’re going to earn back the confidence of the American people. But you’re right, it’s very damaging and I completely share the basic frustration across America about what’s gotten us to this place.
Velshi: And the president has said that he’d like you to use either legal means or leverage — you’ve got leverage because in so many cases, these companies are still getting more money from the government?
Geithner: Right. We’re very focused again on making sure that the assistance we’re providing doesn’t go to unduly benefit the executives that helped get us into this mess.
Velshi: Who makes sure the taxpayer money that is spent on anything with these bailouts or money that goes to private companies is properly supervised? I think that is something that Americans are very worried about.
Geithner: Yeah.
Velshi: That they feel like once the money is out the door here, all of the sudden it is fair game to do anything these companies want with it.
Geithner: You’re absolutely right. And every dollar we provide has to come with strong conditions, with transparency and accountability so the American people see how these dollars are being used and they’re going to be able to see that going forward.
You know, in our first weeks in office, we put in place a whole new set of reforms to make sure that the specific terms of these contracts are put on the Web site, people can see them, we’re going to require much more detailed reporting about what’s happening to lending and the result of our assistance, and you’re exactly right. We need to bring a much higher standard of transparency and accountability and oversight to these programs.
And it’s not just us, the career people here at the Treasury and the Fed that preside over these programs, but we have an important set of independent auditors looking at these programs every day, every minute, every hour. …
Velshi: We have a lot of acronyms. We’ve got TARP, and we’ve got TALF, and we’ve got recovery, and a lot of our viewers have written that they’re not quite sure that the bailout is the same as TARP and whatever it is. So in the clearest language that you can describe, what is it that this government has done so far and the last government? Where are we in terms of fixing the economy? What sense can you give our viewers that money has not been wasted, that this is actually going to work?
Geithner: Right. Now, we are … moving very aggressively to pass the largest program of investments and tax incentives that we’ve seen in generations in the United States, and we’re moving very quickly to put that in place so Americans see the benefit of that.
So you saw this announced yesterday a provision where Americans can get a very substantial credit against the purchase of a new house. You’re seeing us move very quickly to put immediate reductions in payroll taxes so you have money in the hands of the average American. We’re moving very, very quickly to put in place this enormously powerful set of things that Congress has passed. But alongside that — and this is critically important — we need to make sure that the financial system is providing more credit to businesses and families across the country.
So we’ve announced a very ambitious and started to move on a very aggressive set of programs to help bring down mortgage interest rates, to reduce mortgage payments, millions of Americans will benefit from those programs, and again, you’re going to see tens of thousands of small businesses see more access to credit because of the result of these programs.
Those two things need to work together. Because unless you have the financial system working with the Recovery and Reinvestment Act that Congress passed, it is going to be less powerful, less effective. You need to do both at the same time.
Velshi: Many people have e-mailed us saying, why don’t you take all this money and divide it up amongst taxpayers and give it right to them? Why not?
Geithner: These programs, as they’re designed, will be more effective in getting growth back on track. And many of these programs do directly put money in the hands of working Americans. So again, you’re seeing very, very substantial tax cuts that go to 95 percent of working Americans across the country, and they’ll see those immediate benefits in their pocket, but alongside — that’s not enough — alongside that again, the most effective thing government can do in a crisis like this is to put money into projects that improve infrastructure to make it possible for state governments, local governments to pay their teachers, their firemen, their policemen, and those things are a necessary complement to the tax changes that again put money directly in the hands of American people.
Velshi: So the aim of your administration is to create between three and four million jobs with these infrastructure investments?
Geithner: To save or create three or four million jobs. Again, the basic objective is to try to make sure we get growth back on track and businesses back to the position where they’re hiring people, paying them more, expanding their investments. That’s the central objective of this program.
Velshi: There are people who say that that might be based on assumptions about the economy that don’t play out in this environment. What do you think of that? Do we really think that those are — that’s the number of jobs that we’re going to save or create?
Geithner: An incredibly broad spectrum of economists across the American economy agree that in a crisis like this, the government has to move with tax cuts and investments that, again, directly go to getting people back to work and help businesses invest more for the future. Very broad consensus across the spectrum on that from the right and the left.
There’s some disagreement about how best to do it, but there is no choice that the government has to move in this case.
And again, the most prudent thing to do in this case is to move aggressively. If you wait and risk doing too little, then the recession will be deeper and longer, we’re going to face higher deficits in the future, the economy is going to be much weaker in the future, and I think, again, most people across the political spectrum agree on that note. …
Velshi: And when do you think we’ll start to see recovery?
Geithner: Well, as we said just talking earlier, most economists look at the path of this recession now, and they expect to see the economy start to stabilize and growth start to come back later this year, and again, the important thing is the government does what’s necessary to achieve that.
Velshi: And are you at some point going to get that first dollar bill with your signature on it?
Geithner: Yeah, absolutely.
Velshi: When is that going to come?
Geithner: I don’t know. I’ll have to talk to my colleagues.
Velshi: It’s a pretty good gig when you can actually have your signature on the money in your pocket.
Geithner: I think they wanted to do it my first day in office, but I’ve been kind of busy.
Velshi: Well, very good. We will let you get back to you work. Thanks very much for taking the time to talk to us.
Geithner: Thank you. I enjoyed it.
http://www.cnn.com/2009/POLITICS/03/19/geithner.qanda/
