'This Week' Transcript: Timothy Geithner

STEPHANOPOULOS: And you are obviously trying to do that with your plans to shore up the banking system. You laid out what to do about these legacy toxic assets in the banking system this week. And a lot of people are wondering, will it actually work? The stock market definitely seemed to like it, so did a lot of experts. As you know, the Nobel Prize-winning economist Paul Krugman was not a fan. And I want to show what he wrote this week in The New York Times.

He said when he read this plan, it gave him a sense of despair. And he went on to say: "Financial executives literally bet their banks on the belief that there was no housing bubble and the related belief that unprecedented levels of household debt were no problem. They lost that bet and no amount of financial hocus-pocus, for that is what the Geithner plan amounts to, will change that fact."

Financial hocus-pocus.

GEITHNER: George, this is a piece of a series of initiatives we've put in place to help get the financial system doing what it needs to do, which is to provide the credit necessary for recovery. You know, economies depend on financial systems. They're what is -- provide the oxygen, the blood that economies need to grow.

STEPHANOPOULOS: But he says it's just not going to work, that these banks are insolvent, and that even if you put more capital in them, eventually you're going to have to take them over.

GEITHNER: But I just wanted to -- let's step back for a sec. So this is piece of a broad framework of initiatives we're undertaking to help restore the strength of the financial system. Part of our plan -- a core part of our plan involves making sure banks have enough capital to provide the lending we're going to need to get recovery back on track.

Now banks are going to need -- some banks are going to need some large amounts of assistance, and we're going to make sure that that assistance comes with conditions, designed to make sure they restructure, provide accountability on boards of management, that these institutions emerge cleaner, stronger going forward.

STEPHANOPOULOS: But one of the things you're hearing from the banks is in part because they don't want all of these new restrictions, they may not sell these legacy assets.

GEITHNER: That is a risk. And it's very important that people recognize that. To get out of this, we need banks to take a chance on businesses, to take risk again. We had a long period where banks were taking too much risk. The challenge for us is that they take too little now.

And for us to get through this, we need investors and banks to be willing to take a change again on providing credit to that business that has got a great idea and needs to grow, expand.

STEPHANOPOULOS: Well, one of the other criticisms is that the investors, especially in the plans to buy up these toxic assets, are not taking all that much of a risk. They're going to put up $6 and they're going to get 93 percent from the government. We will share on the upside, yes, but they're protected against huge losses.

GEITHNER: George, let's just step back for a sec. The problem we're facing on our financial system is that we -- banks made a bunch of loans, backed real estate that are now facing losses. And those loans are clogging up the financial system.

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