US's Geithner:'Challenge of Our Time'To Rebuild Confid in Gov
By Denny Gulino
--Retransmitting Story Published 19:59 ET Wednesday
WASHINGTON (MNI) - Treasury Secretary Tim Geithner, saying he's not a politician but just trying to do what's right, told an Oregon Public Radio interviewer Wednesday "the challenge of our time" is to rebuild public confidence in government.
Geithner went beyond his usual talking points to reflect on his own "good preparation" for crises, in what was almost a companion piece to the PBS television documentary on the crisis that presented its first two-hour chapter Tuesday night -- in which Geithner is a prominent player. The following two hours will be presented on successive Tuesday nights.
"I spent most of my professional life initially dealing with financial crises in other countries, good preparation, paradoxically," he said. In Tuesday night's beginning to the documentary Geithner at one point is pictured in a meeting as assisting Secretary Robert Rubin and Under Secretary Larry Summers get through crises in Asia and Mexico.
The crises taught him, "All crises are different and they can kill you if you don't manage them carefully," he said. "You can learn a lot from the crises in other countries and the mistakes made in the United States made in the past."
He said the United States "allowed our financial system to completely outgrow the safeguards put in place after the Great Depression," he continued. "We let a huge amount of risk, a whole industry of financial activity that was essentially banking to build up outside of the banking system with none of the protections to contain the risk in banks."
It was a "tragic mistake made over decades in the United States and that is the most important reason why this crisis was so damaging and so difficult to continue to manage," he continued.
"One important lesson, don't let that happen, and that's what these financial reforms are designed to prevent," he said.
After he went to the New York Federal Reserve as president in the fall of 2003, at "the early stage of this huge financial boom that sowed the seeds of the crisis, and what I discovered then and what worried me right from the beginning, was the extent to which again we had allowed a whole parallel financial system to build up outside the constraints of regulation."
As the television documentary points out, Alan Greenspan was Fed chairman then, and testified repeatedly against any regulation for derivatives, one of the crisis trouble spots.
"Remember, the Federal Reserve, its authority to limit risk in the system, was contained then to about half of the financial system," Geithner told his Oregon interviewer. There was no authority over Fannie Mae and Freddie Mac, "no ability to constrain risk taking in the investment banks that grew to be quite large, much less AIG, the thrifts like WAMU, etcetera, Indy Mac, or non-bank financial companies like GE Capital, and no authority to regulate and constrain risk-taking leverage in the broader markets like derivatives where firms come together."
Geithner continued, "Confronted with that reality of our system we worked and we did not do enough, soon enough, did not have the ability to change this to get regulations more conservative where they existed and to try to bring the broader supervisors together to try to contain risk."
The actions taken then, "were not powerful enough to protect the economy from the huge increase in risk" and "it was going to take legislation, fundamental reform of the system, to provide a better set of tools."
The 2010 reforms "give us a more modern set of oversight safeguards that we did not have before the crisis," he said.
"Most financial crises are mismanaged because governments fail to act early enough, fail to understand fully the scale of the damage that can be caused to the innocent, don't escalate quickly enough," he said.
The reasons are for one reason, "People hope things will burn themselves out, won't have to do some tough things. That's sort of the natural inertial conservative force in policy," he said.
"But the other reason is because the things you have to do in a financial crisis are unavoidably, politically terrible," he said.
"To protect an economy from a broken financial system you have to stabilize the financial system," he went on. "for the economy to have the oxygen it needs to grow, you have to make sure that credit can flow, that people are not worried about the safety of their savings in banks."
In doing things "that are terribly difficult politically for people to understand, and that's why most politicians hold back and wait and that's what causes financial crisis to burn longer than they should," he said.
"The crisis was partly worse than it should have been because it took Washington a while to decide to legislate the full set of authorities we needed to stabilize and put out the financial fires," in the fall of 2008.
"When it came we used it very quickly and very forcefully and broke the back of the financial panic," he said. When President Obama took office, "he still faced an economy in free fall" and got initial authority from Congress to try and protect the economy from the rest of the damage."
"Yes, it's unfair. And yes, it feels unjust," Geither said. "And yes, everything that still feels terrible in this economy today is the aftershocks and the scars of that basic reality -- we had a financial system burning, causing a huge amount of damage to the innocent."
He continued, "That came on top of a long period of no growth in median income, a huge rise in inequality. And again, we're a country that lives with truly alarming levels of poverty for a country this rich."
After the crisis, the government "did force a dramatic restructuring of the American financial system," he said. "The weakest parts of our system, the institutions, no longer exist."
In early 2009, the firms that survived, "We said, we are going to force you to meet a very tough market test for viability and go out and raise private capital to make sure you can survive. And if you are unable to do that, then we're going to come in and take over and restructure you and put you out of your misery."
The banks that did survive "were forced to go out and raise $300 billion of private capital that diluted existing shareholders roughly in proportion to the mistakes those banks had made. There was no alternative," he said.
"You don't act to save the financial system. You act to save the country from the consequences of a collapsing financial system, an important distinction," Geithner said.
As far as punishing the guilty, "The wheels of justice are turning now. They're not turning as fast as people would like but we have the best system in the world for making sure we can enforce the laws of the land." Nevertheless, he added, "Rarely is an actual crime a material source of the damage." Instead, the crisis is caused by a mix of stupidity and greed and recklessness and risk taking and hope -- the illusion that the world will be stable in the future, that you borrow a huge amount and everything will be fine."
Credit default swaps, he said, "played no material role in causing the crisis or making it harder to manage, and they certainly were not illegal," he said.
It was "decisions across the country to take too much risk, to borrow too much against future income -- that's what makes financial crises so brutal and damaging and unfortunately or fortunately the way it is, most of that is legal," he said.
"You cannot legislate away stupidity and risk taking and greed and recklessness," he said. "What you can do is make sure that when it happens it doesn't cause too much damage."
The result of the bailouts and the survival and continuing prosperity of amny of those widely seen as responsible for the damage was a loss of public confidence in government, and now, Geithner said, "It's the political challenge of our time" to win back the public trust.
"It's a huge loss of faith in public institutions across this country," he said. "It was happening before the crisis but dramatically magnified by the crisis."
So, "you have to earn back confidence of Americans that government can make sensible judgments, not just with their money, but in designing and the rules and protections economies need," he said.
** MNI Washington Bureau: 202-371-2121 **
By Denny Gulino
--Retransmitting Story Published 19:59 ET Wednesday
WASHINGTON (MNI) - Treasury Secretary Tim Geithner, saying he's not a politician but just trying to do what's right, told an Oregon Public Radio interviewer Wednesday "the challenge of our time" is to rebuild public confidence in government.
Geithner went beyond his usual talking points to reflect on his own "good preparation" for crises, in what was almost a companion piece to the PBS television documentary on the crisis that presented its first two-hour chapter Tuesday night -- in which Geithner is a prominent player. The following two hours will be presented on successive Tuesday nights.
"I spent most of my professional life initially dealing with financial crises in other countries, good preparation, paradoxically," he said. In Tuesday night's beginning to the documentary Geithner at one point is pictured in a meeting as assisting Secretary Robert Rubin and Under Secretary Larry Summers get through crises in Asia and Mexico.
The crises taught him, "All crises are different and they can kill you if you don't manage them carefully," he said. "You can learn a lot from the crises in other countries and the mistakes made in the United States made in the past."
He said the United States "allowed our financial system to completely outgrow the safeguards put in place after the Great Depression," he continued. "We let a huge amount of risk, a whole industry of financial activity that was essentially banking to build up outside of the banking system with none of the protections to contain the risk in banks."
It was a "tragic mistake made over decades in the United States and that is the most important reason why this crisis was so damaging and so difficult to continue to manage," he continued.
"One important lesson, don't let that happen, and that's what these financial reforms are designed to prevent," he said.
After he went to the New York Federal Reserve as president in the fall of 2003, at "the early stage of this huge financial boom that sowed the seeds of the crisis, and what I discovered then and what worried me right from the beginning, was the extent to which again we had allowed a whole parallel financial system to build up outside the constraints of regulation."
As the television documentary points out, Alan Greenspan was Fed chairman then, and testified repeatedly against any regulation for derivatives, one of the crisis trouble spots.
"Remember, the Federal Reserve, its authority to limit risk in the system, was contained then to about half of the financial system," Geithner told his Oregon interviewer. There was no authority over Fannie Mae and Freddie Mac, "no ability to constrain risk taking in the investment banks that grew to be quite large, much less AIG, the thrifts like WAMU, etcetera, Indy Mac, or non-bank financial companies like GE Capital, and no authority to regulate and constrain risk-taking leverage in the broader markets like derivatives where firms come together."
Geithner continued, "Confronted with that reality of our system we worked and we did not do enough, soon enough, did not have the ability to change this to get regulations more conservative where they existed and to try to bring the broader supervisors together to try to contain risk."
The actions taken then, "were not powerful enough to protect the economy from the huge increase in risk" and "it was going to take legislation, fundamental reform of the system, to provide a better set of tools."
The 2010 reforms "give us a more modern set of oversight safeguards that we did not have before the crisis," he said.
"Most financial crises are mismanaged because governments fail to act early enough, fail to understand fully the scale of the damage that can be caused to the innocent, don't escalate quickly enough," he said.
The reasons are for one reason, "People hope things will burn themselves out, won't have to do some tough things. That's sort of the natural inertial conservative force in policy," he said.
"But the other reason is because the things you have to do in a financial crisis are unavoidably, politically terrible," he said.
"To protect an economy from a broken financial system you have to stabilize the financial system," he went on. "for the economy to have the oxygen it needs to grow, you have to make sure that credit can flow, that people are not worried about the safety of their savings in banks."
In doing things "that are terribly difficult politically for people to understand, and that's why most politicians hold back and wait and that's what causes financial crisis to burn longer than they should," he said.
"The crisis was partly worse than it should have been because it took Washington a while to decide to legislate the full set of authorities we needed to stabilize and put out the financial fires," in the fall of 2008.
"When it came we used it very quickly and very forcefully and broke the back of the financial panic," he said. When President Obama took office, "he still faced an economy in free fall" and got initial authority from Congress to try and protect the economy from the rest of the damage."
"Yes, it's unfair. And yes, it feels unjust," Geither said. "And yes, everything that still feels terrible in this economy today is the aftershocks and the scars of that basic reality -- we had a financial system burning, causing a huge amount of damage to the innocent."
He continued, "That came on top of a long period of no growth in median income, a huge rise in inequality. And again, we're a country that lives with truly alarming levels of poverty for a country this rich."
After the crisis, the government "did force a dramatic restructuring of the American financial system," he said. "The weakest parts of our system, the institutions, no longer exist."
In early 2009, the firms that survived, "We said, we are going to force you to meet a very tough market test for viability and go out and raise private capital to make sure you can survive. And if you are unable to do that, then we're going to come in and take over and restructure you and put you out of your misery."
The banks that did survive "were forced to go out and raise $300 billion of private capital that diluted existing shareholders roughly in proportion to the mistakes those banks had made. There was no alternative," he said.
"You don't act to save the financial system. You act to save the country from the consequences of a collapsing financial system, an important distinction," Geithner said.
As far as punishing the guilty, "The wheels of justice are turning now. They're not turning as fast as people would like but we have the best system in the world for making sure we can enforce the laws of the land." Nevertheless, he added, "Rarely is an actual crime a material source of the damage." Instead, the crisis is caused by a mix of stupidity and greed and recklessness and risk taking and hope -- the illusion that the world will be stable in the future, that you borrow a huge amount and everything will be fine."
Credit default swaps, he said, "played no material role in causing the crisis or making it harder to manage, and they certainly were not illegal," he said.
It was "decisions across the country to take too much risk, to borrow too much against future income -- that's what makes financial crises so brutal and damaging and unfortunately or fortunately the way it is, most of that is legal," he said.
"You cannot legislate away stupidity and risk taking and greed and recklessness," he said. "What you can do is make sure that when it happens it doesn't cause too much damage."
The result of the bailouts and the survival and continuing prosperity of amny of those widely seen as responsible for the damage was a loss of public confidence in government, and now, Geithner said, "It's the political challenge of our time" to win back the public trust.
"It's a huge loss of faith in public institutions across this country," he said. "It was happening before the crisis but dramatically magnified by the crisis."
So, "you have to earn back confidence of Americans that government can make sensible judgments, not just with their money, but in designing and the rules and protections economies need," he said.
** MNI Washington Bureau: 202-371-2121 **