'This Week' Transcript: Timothy Geithner

Treasury Secretary Timothy Geithner on "This Week with George Stephanopoulos."


MARCH 29, 2009



[*] STEPHANOPOULOS: Good morning and welcome to "This Week."


PRESIDENT BARACK OBAMA: We put in place a comprehensive strategy designed to attack this crisis on all fronts.


STEPHANOPOULOS: Our headliner this morning, the man behind Obama's plan.


GEITHNER: We made some significant progress.

We have a moment of opportunity now.

We believe we have to provide very substantial forms of financing.

(UNKNOWN): Today we love Geithner. Two weeks ago, we didn't like him. We thought he was nothing. Today we like him. He's a genius.


STEPHANOPOULOS: In his first Sunday interview, the secretary of the Treasury, Tim Geithner.

Plus, Geithner's most prominent critic.


PAUL KRUGMAN, NEW YORK TIMES: It's a plan to rearrange the deck chairs and hope that that keeps us from hitting the iceberg.


STEPHANOPOULOS: Nobel Prize winner Paul Krugman joins our roundtable, with George Will, Cokie Roberts and Matthew Dowd.

And as always, the Sunday funnies.


(UNKNOWN): Michelle Obama's planting a vegetable garden on the White House lawn. You know the economy is bad when the Obamas are afraid of running out of food.


STEPHANOPOULOS: Hello again. Last week, he was under fire; this week, he was everywhere, rolling out new proposals to shore up America's finances. And today, Treasury Secretary Tim Geithner joins us for his first Sunday morning interview. Welcome to "This Week."

GEITHNER: Thanks, George. Good to be here.

STEPHANOPOULOS: So you lay out the first phrase of the bank plan back in February. The Dow drops 382 points. This week, you laid out the new phase of the bank plan, 500-point rise over the course of the week. Do you feel like the comeback kid?

GEITHNER: George, we're facing still a lot of challenges. Can't judge a plan on the reaction one day one week. But we've done a lot in these eight weeks. You know, the president's housing plan has already helped bring down interest rates. Millions of Americans now are going to be able to take advantage of lower interest rates. If you take a typical family living in a $180,000 home, the rate reductions we've already seen could save them as much as $2,000 a year.

STEPHANOPOULOS: And we did see a lot of encouraging signs in the economy this week. New home sales were up. Mortgage refinances, as you pointed out, were up. Even durable goods orders were up, and inventories went down. And of course, a 20-percent rise in the stock market over the last couple of weeks. What does this tell you? What should Americans know right now about where the economy is and whether recover is in sight?

GEITHNER: Well, these are encouraging signs, and it's good when you see the new surprise on the upside, rather than the other way.

STEPHANOPOULOS: So you were surprised?

GEITHNER: Well, I think these are, again, they came in above expectations, much (inaudible) -- that's a very good sign. But it's very important for people to understand that, you know, it took us a long time to get into this mess. It's going to take us a while to get out of this. Progress is not going to be even. It's not going to be steady. The really important thing is that the administration is going to do what is necessary working with the Congress to making sure we're putting in place very powerful programs to get Americans back to work.

STEPHANOPOULOS: So you're barraged by economic statistics every day. I'm sure there are a bunch of screens in your office. What is the single most important statistic that you are looking at, that you're tracking to say, when this turns, we're out of the woods?

GEITHNER: There is no single number you have to look at. You need to look at what people are doing with the income and the savings they have. Are they spending? Are businesses expanding? Are they hiring more people? Are interest rates coming down? Is credit starting to flow again? You have to look at that broad suite of things. There's no single number that gives you the health -- the measure of the health of the economy.

STEPHANOPOULOS: What is the next shoe to drop? In talking to business leaders over the last couple of weeks, I hear a lot of concern about the commercial real estate market. And from bankers especially, they're concerned that as unemployment rises, their credit card defaults could really go through the roof?

GEITHNER: There's no doubt there's more losses ahead for the financial system, but George, we've had a lot of adjustment already. One of the things about the American economy is, change happens here with brutal force, much more quickly than it happens around the world. And we've already had -- you know, we're 18 months into this, and we've had...

STEPHANOPOULOS: It's a long recession.

GEITHNER: It is a long recession, and it's a -- it's been dramatic and painful and brutal in some ways, in part because adjustments happen here so quickly. But that's a good thing too, because that means more of that adjustment process is behind us.

Now, the important thing, though, is that we keep at it. You know, the big mistake governments make in recessions is they put the brakes on too early.

STEPHANOPOULOS: Is that what happened during the depression? Is that what Franklin Roosevelt did?

GEITHNER: That's one thing that happened in the depression. It's happened in Japan, too. It's happened in a lot of countries in the world. They see that first glimmer of light, and the impetus to policy fades and people are putting on the brakes, and we're not going to do that.

STEPHANOPOULOS: But I wonder about, as you look in the long term -- and you believe we're obviously going to come out of this at some point. You believe the recovery will start, what, the end of this year?

GEITHNER: Most private economists believe you're going to find a more durable bottom in the second half of this year and then have growth come back.

STEPHANOPOULOS: But even if we come out of that, a lot of economists worry that this recovery is going to feel like a recession, that we're going to have a jobless recovery. Very -- I see you nodding your head. You believe that?

GEITHNER: I think a lot -- people worry about this. You have a recession like this, which is born out of a period where people borrowed too much, and we let our financial system take on too much risk. The risk in that conduct is you have a longer, slower, more gradual process of adjustment and recovery.

STEPHANOPOULOS: And some experts believe that we're really entering a brand new world. I was struck by a piece of research I saw from a branch of Citigroup. This was -- and I'm going to share it with our viewers. They're saying, "Don't be in a state of denial, we are really entering a brand new economic world even after the recovery, because for so long the U.S. has been acting like a leveraged hedge fund."

And they go on to say: "Not only is the lifestyle and wealth creation likely to be unsustainable going forward, but if you believe, as we do, that we've been operating in a leveraged economy, then the new normal in terms of economic data, profitability of companies, et cetera, may be a shadow of the past."

So do Americans have to get used to the idea that the boom times really aren't coming back?

GEITHNER: Well, we're going to emerge out of this stronger. And we're going to do that because the president and the Congress are going to make sure that we have the government doing a better job of things it needs to do.

So we have a more productive economy in the future, better education outcomes, better health care system, better energy policies, stronger infrastructure.

STEPHANOPOULOS: Stronger, but as affluent as we were in the past?

GEITHNER: Well, you know, we want to have sustainable growth. We don't have -- we don't want to have a recovery which is going to be artificial and short-lived, just produce the seeds of the next crisis.

We want to have a durable recovery based on a stronger foundation that has a stronger, more productive economy emerging through it where the gains are more broadly shared across the economy as a whole.

STEPHANOPOULOS: So income inequality goes down?

GEITHNER: It should go down. Again, you know, if you look at the record of performance in the '90s, you know, we had very strong productivity growth during a period of fiscal discipline, fiscal responsibility, strong private investment, and the gains were shared much more broadly.

We can do that as a country, but it requires getting this government to do a better job of doing things only governments can do. That's why I assume important we get better outcomes. That's why fixing our health care system and get costs growing more slowly is so important. That's why we need a better energy policy. And that's why infrastructure needs to be improved.

STEPHANOPOULOS: But do you really believe we're going to get back to what we saw in the 1990s in terms of the kind of affluence we saw across the board?

GEITHNER: George, I think Americans should be optimistic about the future of this country. We are a strong, remarkably resilient country. We are still the most productive economy in the world by many measures.

We have a university system that is the envy of the world. People with an idea still want to come to the -- America to grow business, build on that idea. That's a great source of strength for our recovery.

But we need this government, though, to do a better job of doing what governments have to do.

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.

They're taking up room that could otherwise be used to provide new credits to a business or a family. Now we have two choices, we can let -- leave that as it is, hope that banks earn their way out of this over time. That would be a mistake. That would leave us with a strong -- with a deeper, longer recession.

We're not prepared to adopt that basic strategy.

STEPHANOPOULOS: But there is a third choice...

GEITHNER: There is another choice -- let me say, there's another choice that a lot of people suggest is the government itself comes in, buys these assets, sets the pricing of an asset, takes on all of the risk in that strategy.

And that would leave the taxpayer taking on much more risk, much greater risk of loss over time. We don't think that's an appropriate approach.

The approach we're adopting, though, is to have private investors come in and put their capital risk alongside the government. That helps make sure we're using their incentive to set the price for these assets, rather than having the government set the price and risk overpaying.

This is a conservative structure. It's, sort of, basically like what happens when you buy a house, put money down, borrow it to buy a house. It's a more conservative structure than banks typically run with. And we think it's a much better way, again, to make sure the taxpayer's not taking on risk the taxpayer should not take.

STEPHANOPOULOS: So you're saying your proposal is the middle course. I guess there's a fourth option that Senator McCain lays out, other Republicans have laid it out. He says, just go in and shut them down.


STEPHANOPOULOS: These banks ought to be shut down. He says they should be taken over, their management and shareholders suffer the consequences, and their assets resold to private-sector entities.

What's wrong with that idea?

GEITHNER: Well, George, the approach we're adopting, again, is to make sure that there's capital in the financial system where we need capital. And that capital will come with conditions.

As the senator said, make sure these institutions emerge stronger, not weaker. We don't want to be sustaining the weak at the expense of the strong. But our system...

STEPHANOPOULOS: But is that plan B, if your plan fails, is that plan B, go in, take them over, shut them down eventually, unwind their assets?

GEITHNER: The way I would describe it, George, is that we need to move to make sure the banking system is able to provide the credit recovery needs.

When they do that, again, with strong conditions to protect the taxpayer, make sure they restructure where they need to restructure.

But, you know, our system doesn't just depend on banks. In a typical -- in a typical market, more than 40 percent of lending comes from outside of banks, so in the securities markets, through the secondary markets that are so critical to student loans, small- business lending, consumer lending.

And so we have a very aggressive program in place to help provide credit directly, going around banks, get those markets working again.

Now, this is not something any country's faced in the past. We are moving much more aggressively than the U.S. moved in the S&L crisis, than Japan moved in the 90s. We're moving at a much earlier stage to help preempt failure, make the system stronger, with tough conditions to protect the taxpayer.

STEPHANOPOULOS: But, as you said, this is likely to cost far more in capital injections for the banks. And I guess the big question is, where is that money going to come from?

According to our calculations, there was only about, going into today, about $32 billion, maybe a little more, left in the TARP, the financial rescue program.

Late last night, the Treasury Department said that number is actually far higher, more than $130 billion. That is a huge difference. And it is the first time the Treasury Department has ever put a number on what is left over.

Where did you come up with that extra $100 billion?

GEITHNER: George, we have roughly $135 billion left of uncommitted resources. Less is out the door, but in terms of, if you look at what's not committed yet, it's roughly, you know, $135 billion.

Now, that -- that estimate includes a judgment, a very conservative judgment about how much money is likely to come back from banks, that are strong enough not to need this capital, now, to get through a recession.

But that's a reasonably conservative estimate. And it gives us -- and this is very important -- substantial resources to move ahead with this broad-based suite of initiatives to help get the financial system back in the business of providing credit. STEPHANOPOULOS: So does that mean, now, that with this $130 billion, if you're correct, you're going to take care of the auto companies; you're going to take care of unforeseen problems; these new capital injections in the banks.

Earlier in the year, the president and you seemed very concerned that -- and you warned the Congress -- we're going to be coming back for money.

Is that less likely now, now that you have more than $130 billion left in the TARP?

GEITHNER: George, the important thing is that we are going to work with the Congress to make sure that we have the resources needed to do this right.

Again, the lesson of financial crises is governments tend to do too little; they wait too long to escalate.

STEPHANOPOULOS: Right, but I talk to people on Capitol Hill a lot, and there is no support, right now, for adding more money to the TARP.

Can you get through the rest of this year with the money you have?

GEITHNER: We have substantial resources. We're going to use them quickly, as carefully as we can, make sure they're diverted to things that are going to get credit flowing again. And we'll cross that bridge when ewe come to it, in terms of whether we need additional resources.

And, of course, if we come to that point, we'll go to the Congress and give them the strongest case possible and help them understand why this would be cheaper over the long run, for us to move aggressively...


STEPHANOPOULOS: But are you farther away from the bridge than you thought you'd be a few months ago?

GEITHNER: No, I think we're about where we were. You know, this is not easy for people. I mean, this is people -- there is a deep amount of public anger and frustration about the fact the American economy is suffering so much damage from the consequence of people who took too much risk.

And, you know, the tragedy of the financial crisis is they are -- the damage is brutal; it's indiscriminate. It affects not just the people who took too much risk but people who were careful and responsible in their decisions.

But the important thing is these things don't bring themselves out without catastrophic damage.

STEPHANOPOULOS: So Congress should be braced for another request?

GEITHNER: No, I'm not saying that. I just saying that the important thing -- and Congress, again, has already moved, really, before the administration took office, to authorize a very substantial amount of resources. And we're moving very quickly to put those to work for the American financial system. And where we've done that...

STEPHANOPOULOS: But they took the funds out of the budget to pay for the next round of bailouts.

GEITHNER: Well, I wouldn't -- you know, that was about '09 -- I mean, that was about the '010 budget, not the '09 budget. But look what's happened already, George. You know, where we had moved, and we moved very, very quickly, much more quickly than governments had typically in the past. And if you look at what's happened in housing, even in small-business lending, you're seeing significant effects already in opening up these markets, bringing interest rates down, and that has very powerful effects in the American economy.

STEPHANOPOULOS: Let's talk about -- last week was a much worse week for you than this week. AIG, the whole outrage over the bonuses. And one of the members of Congress you've worked closely with, Charles Rangel, the chairman of the Ways & Means Committee, was very tough on you this Friday over the AIG issue. He lumped you and Secretary of Treasury Paulson together as coming out of the culture of Wall Street. Take a look.


REP. CHARLES B. RANGEL, D-N.Y.: They drink a different water. They breathe a different air. They don't know what pain is, and so getting a $6 million bonus is just natural to them. They don't know shame. They don't know how to apologize.


STEPHANOPOULOS: Now, the irony is, you've never worked for a Wall Street firm...

GEITHNER: Thank you for saying that. For reminding...

STEPHANOPOULOS: But many of the critics have made exactly the same point, that you're -- because you've worked around it for so long, you were too beholden to the Wall Street culture, and that's what explains the blind spot on AIG.

GEITHNER: Not at all, George. As you said, I've worked all my life in public service. I've spent my entire professional life helping this government and this country do a better job of dealing with financial crises and helping protect the economy from the damage these causes.

I would not spend a penny on helping a bank for the purpose of helping a bank. Everything we're doing is for the people that depend on this financial system. Every time we provide assistance to the financial institutions, it's only because we need them to do a better job of getting credit to help reduce the risk of a deeper recession.

STEPHANOPOULOS: What did you learn from the whole AIG bonus experience? How could you have handled it differently?

GEITHNER: You know, I don't think our choices would have changed. We had no good choices in those conducts. These were contracts that were set well before the government came in, before Ed Liddy became CEO. We're a nation of laws. We cannot run this country, expect our country and our economy to work, businesses to function if there is an ongoing fear the government will come in and retroactively change the terms of existing contract. So we had no good choices in that contracts (ph), but we moved very, very quickly to make sure that we were going to get them to renegotiate future payments, that there were strong conditions on compensation going forward. That's what we're going to do.

Now, where we have the chance to go back and recoup, where there was evidence of malfeasance of fraud, we will do that.

STEPHANOPOULOS: And some are saying you should go back and recoup on another, much bigger issue having to do with AIG, and that's all the payments they made to their so-called counterparties. Let me show our viewers who got the money from AIG after they got a government bailout -- $13 billion to Goldman Sachs; $12 billion to Bank of America; more than $30 billion to a series of foreign banks. That has upset a lot of members of Congress. Elijah Cummings and 26 other members of Congress have written a letter saying they want to know why an attempt wasn't made to renegotiate.

Let me read exactly what they said. "Was any attempt made to renegotiate and close out these contracts with haircuts? If not, why not? What was the benefit of the decision to pay 100 percent of face value to the American taxpayers who provided the bailout funds, and how did it support the goal of ensuring the stability of the economic system?"

Now, Goldman Sachs, for example. Their chief financial officer said he had no material economic exposure to AIG. So why weren't they forced to take a discount?

GEITHNER: George, we came into this crisis as a country without the tools necessary to contain the damage of a financial crisis like this. In a case of a large, complex institution like AIG, the government has no ability, had no meaningful ability to come in early to help contain the fire, contain the damage, prevent the spread of that fire. Restructure the firm, change contracts where necessary, and helped make sure that the financial system gets through this...

STEPHANOPOULOS: But it would have been the right thing to do, right?

GEITHNER: If we had the legal authority, that's what we would have done. But without that legal authority, we had no good choices. We were caught between these terrible choices of letting Lehman fail -- and you saw the catastrophic damage that caused to the financial system -- or coming in and putting huge amounts of taxpayer dollars at risk, like we did at AIG, to keep the thing going, unwind it slowly at less damage to the ultimate economy and taxpayer.

STEPHANOPOULOS: So how about now, Goldman Sachs is taking other government money. They got this $13 billion whole from AIG. Congressman Brad Sherman and others have said, they should give that $13 billion back.

GEITHNER: George, the important thing is, we have no legal ability now. That's why I went to Congress last week, to propose a broad change in resolution authority so that we have the capacity to do what we do with banks now.

STEPHANOPOULOS: But wouldn't it be the right thing for Goldman?

GEITHNER: To give that money back?


GEITHNER: Look, again, the government of the United States in a situation like this has to make sure that we're containing the damage that might come from default by a major complex financial institution. We need better legal authority to do that, did not have that authority coming into this crisis. It's a tragic...

STEPHANOPOULOS: So nothing to be done looking back, but going forward, that's exactly the authority you would want.

GEITHNER: Absolutely. Our obligation now, again, is to defuse and help unwind this deeply complicated problem that AIG presents. But we want to work with the Congress to put in place stronger tools, stronger resolution authority, so the government can come in more quickly, earlier, before things have passed the point of no return, contain the damage, prevent the fire from spreading, restructure the firm, have it emerge stronger, at less risk to the taxpayer. That's what we need. We should have had this before this crisis, but we didn't. But we need to move quickly now.

STEPHANOPOULOS: Let's talk about government debt. A lot of Americans more and more are concerned about that. According to the Congressional Budget Office, in 10 years, the government debt will be 82 percent of GDP. And I'm going to read a question that came in from one of our viewers, Bruce Gower of Rock Hill, South Carolina. He asks, "how do you justify printing money out of thin air and the amount of debt you are subjecting future generations to with this budget? Who cares if roads are smoother if I or my children can't afford a car to drive because of the hyperinflation that had taken away all their spending power?"

Are you worried about hyperinflation down the road?

GEITHNER: That's not going to happen in this country, will never happen.


GEITHNER: Will never happen. Because we have a strong, independent Fed, with a clear authority from the Congress to keep inflation low at -- stable at low levels going forward.

STEPHANOPOULOS: The Fed has been putting so much money into the system.

GEITHNER: But that's not going to create the risk of hyperinflation in the future.

We have a strong independent Federal Reserve with a very strong mandate from the Congress, and they will do what's necessary to keep inflation low and stable over time.

But George, just step back for one second. You know, when I left the Treasury in 2001, we had large surpluses -- large surpluses projected. We started this administration with a $1.3 trillion deficit and a deepening recession, enormously challenging global financial crisis. The cost of fixing that crisis is going to require larger deficits in the short term, but the best way to make sure we get those deficits down in the future is to get recovery established, get -- make the economy stronger going forward. That's the best way to get us back on a path to fiscal responsibility.

STEPHANOPOULOS: And from what you were saying earlier, you're actually more concerned about putting the brakes on too quickly.

GEITHNER: That would cause more damage to the productive capacity of this economy and would risk larger deficits in the future. Again, the big mistake governments make in financial crises is to sit back, hope it's going to work itself out, put the brakes on too quickly, not act aggressively enough, and we can't afford to make that mistake.

STEPHANOPOULOS: Announcement coming tomorrow on autos. And I have a question that my friend George Will gave for you, and he said why is Chrysler too big to fail but Studebaker wasn't?

GEITHNER: George, I'm not going to get ahead of the president's announcement tomorrow, but it's important to know that we want to have a strong automobile industry. We want it to emerge from this period of challenge stronger. That's going to require a lot of restructuring. We're prepared as a government to help that process if we believe it's going to provide the basis for a stronger industry in the future that's not going to rely on government support.

STEPHANOPOULOS: But is Chrysler really too big to fail?

GEITHNER: George, I'm not going to get ahead of the president's -- as I said, it's very important for our country that we have a strong automobile industry going forward.

STEPHANOPOULOS: We're just about out of time, but you -- there was a real sign that you had made it in the Washington culture just a couple of weeks ago, parodied on Saturday Night Live just two weeks ago. Here's what they said.

(BEGIN VIDEO CLIP) (UNKNOWN): This $420 billion will be placed in a special fund and will go to the first individual who comes up with a workable plan to solve the banking crisis.


STEPHANOPOULOS: So what did you think when you saw that?

GEITHNER: I didn't see it, but my kids saw it. They thought it was pretty funny. But you know, one of the great things in this job is people have a lot of ideas. We get ideas all the time.

STEPHANOPOULOS: Even from Saturday Night Live?

GEITHNER: Well, not from Saturday Night Live, but we get it -- from people who are smart, thoughtful, credible, have been part of solving these crises in other countries, and we listen to everybody. We have got no pride of authorship in ideas, and we're going to do -- the only test that matters to us, is, is it going to work? Is it going to get credit flowing again at acceptable risk, least cost to the taxpayer?

STEPHANOPOULOS: And what's the most important single thing you've learned over the last three months?

GEITHNER: That to get through this, governments need to act. Great obligation responsibility for governments to act to solve these things. The market will not solve this, and the great risk for us is we do too little, not that we do too much.

STEPHANOPOULOS: Secretary Geithner, thanks very much for your time this morning.

GEITHNER: Thank you, George.