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Geithner Impressive
by Hiland Doolittle

For many Americans, Secretary Geithner’s performance in heated Senate debates one year ago was less than inspiring. In fact, it was unnerving and caused stock markets to tumble and countless cries for his replacement. Many felt the Secretary seemed over-matched and under-qualified. One year ago, Treasury Secretary Geithner was operating on little to no sleep and facing a treacherous condition that could have escalated into a worldwide economic collapse.

A very different, composed and confident Secretary Timothy Geithner addressed the nation in a Town Hall styled meeting hosted by CNBC on Thursday evening. The meeting marked the end of a very public and long day for the Secretary who earlier in the day appeared before the Congressional Oversight Committee. In keeping with the core performers in the Obama Administration, the Secretary stayed on message emitting a balance of confidence and concern about the recession and the current recovery.

Citing the events of the past year, Geithner painted a bleak summary of the economy’s condition one year ago when Lehman Brothers collapsed. Pointing a sharp finger at the lax regulatory standards of the previous administration, Geithner pledged that stringent regulations were in effect and would remain in place in the future.

Under questioning from CNBC co-hosts Steve Leisman and Erin Burnett and an interested audience, the Treasury Secretary made it clear that the financial system stood at the brink of collapse one year ago. The government was forced to intercede to save the financial system.
The Government’s Path

Geithner made it clear that had the Treasury and Federal Reserve not taken a pro-active role in saving the financial sector, the economy would have collapsed and taken global economies with it.

The Secretary was pressed about the role of government in the economy in the future. On more than one occasion, he stated that an early exit by government could lead to another recession. While the economy has entered the recovery stage, more stimulus and more thorough regulation will be needed to prevent a recurrence.

“We’re going to be careful not to withdraw too soon. The classic mistake that countries make in crises is they put the brakes on too early, they re-ignite the recession ultimately at much greater fiscal costs and much greater damage to the economy. That’s the balance we’ve got to get right.”

Geithner made it clear that he did not relish the present level of government activity but that there was no option at this time. The Secretary painted a bleak picture of the American employment scene stating that unusually high levels of unemployment would exist for a long time. He also indicated that the recovery was fragile and would occur over an extended period. He did not rule out the strong possibility of a further dip in housing values.

Risk Taking and Regulation

Secretary Geithner discussed the risk taking mindset of American financials on two occasions. He suggested that the exorbitant bonuses paid to financial executives who were rewarded for improper risk taking. Geithner made it clear that uncontrolled risk had led to the collapse and that this administration would not rest until proper controls were in place.

“We have to put much stronger rules of the game in place with much stronger constraints on how much risk can take place. People are so angry. They have had this searing experience that caused so much damage and I think generally people understand that we’re going to have to change things. We can’t let things go back to the way they were.”

At the same time, Geithner made it clear that he did not feel Treasury should remain involved in the financials any longer than absolutely necessary. When Geithner came on board, the government invested more than $200 billion in U.S. financials. Since then, more than $80 billion has come back to Treasury. Another $50 billion is expected in the near future. Meanwhile many of the government’s investments have been profitable.
Tax Increases

On the unpopular possibility of increased taxes, the Secretary was subtle but pointed. His most telling statement was greeted by surprising support from the audience. “… the world needs to understand that we’re going to bring these deficits down. And that means we’re going to have to bring our commitments and our resources closer into balance.”

There seemed little doubt that Geithner believes tax increase will b e necessary to pay down the country’s new obligations.

In acknowledging the high rate of foreclosures and small business failures suffered by innocent bystanders, Geithner expressed regret that so many had suffered. He repeated the Obama administration’s refrain that these tragedies did not occur on his watch.

Geithner’s analytical take on the current condition was far from optimistic. “We’re going to make progress. It’s not going to be even and quick. I think things are going to feel just hard, unacceptably hard, for a long period of time. But, because we want to fix this right, it’s going to take a while.