Treasury's Geithner in his own words

McClatchy NewspapersFebruary 25, 2010 

RALEIGH, N.C. — In a wide-ranging interview, Treasury Secretary Timothy Geithner defended Obama administration policies and discussed future challenges. Here's some of what he had to say.

Evaluating first year on the job:

"I feel more confident about the state of the nation than I have in two-and-a-half or three years. I feel very pleased, confident, proud of the basic strategy we've adopted. I think it's been remarkably effective in putting out the financial fire and restarting growth. You can't say that without acknowledging and making people understand that there is just still a huge amount of suffering and damage out there. The legacy of this crisis, we're going to be living with that for a long time and it's going to take us a long time to get out of it."

On 2009's $862 billion stimulus effort:

"It delivered what it had to deliver. We would not be in this position today without those actions. It would be much, much harder for us to do anything of the things we're still going to have to do going forward if we hadn't done those initial things."

Year two challenges:

"Part of governing is understanding that there are limits to what the government can do . . . but the job of the government really now is to create an environment for the private sector to heal, and to invest, and expand. And that's a different challenge than we faced immediately."

Improving prospects for housing sector:

"You've had about eight months of relative stability. It doesn't mean you might not have some further softness in some areas, but for the first time, houses are much more affordable and this huge imbalance between the supply and demand for homes is starting to look substantially better."

Why this matters to broader economy:

"Just stopping the deep drop in construction helps the economy a lot. You can have a recovery with an economy growing 3 to 4 percent, even without another boom in housing, and even without house prices starting to rise again. The biggest driver of what is happening in housing now is what is happening with unemployment and incomes. And the best objective or policy now is to make sure that we are reinforcing the recovery process with things that are going to help make employment growth stronger."

The "bottom line" for revamping financial regulation:

"They key things for us are very strong independent consumer protection, that can be applied to banks and non-banks, that we don't have loopholes in any form that gut basic protections, or that could be exploited over time. That we have very clear authority, accountability, for serious constraints on risk taking at major firms, and that we have the capacities, through quasi-bankruptcy, to manage future failures without taxpayers being exposed to risk like we saw in Lehman and AIG."

On the regulation of exotic financial instruments called derivatives:

"I think there is a basic obligation of public policy that makes sure that you have enforcement authorities that can enforce rules against fraud and manipulation. That you can make sure that you can force margin and capital requirements to be strong enough so that they can protect the system from the risks that are inherent in this stuff. You want to make sure that we move the vast bulk of this stuff onto central clearinghouses where the risks are more carefully managed and you are less likely to have contagion spread. I think those things are very important to do, and if you get those things right we can be much more confident that these markets will bring more benefits to the economy as a whole than they do risks."

On whether Washington is broken:

"The scale of the challenges facing the country is dramatically different. The loss of confidence in basic institutions and government is much worse. It's just been a brutal, devastating loss of confidence in public institutions, and that is a very bad combination because the things that we have to do for the country now require things that only the government can do."

On the contradictions in political life:

"The president says somehow we've managed to create a situation where there's a large portion of Americans that think we are running a pro-business, pro-Wall Street policy. But the business community and Wall Street think we are like a bunch of socialists. That shows the basic nature of the moment we're in, which is a deep loss in trust in government and how things work, and a deep sense of uncertainty."

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