Geithner: Stimulus Working But Pain Still 'Acute'

Washington, Oct. 29, 2009 — -- Treasury Secretary Timothy Geithner today said government rescue programs such as the stimulus and financial bailout had helped the nation's economy grow at an annual rate of 3.5 percent during the third quarter of this year, the strongest growth rate in two years, but warned that for many Americans, "the recession remains alive and acute."

"These improvements are the direct results of the tax cuts and investments that were part of the Recovery Act and the actions we've taken to stabilize the financial system and unfreeze credit markets," Geithner told the House Financial Services committee this morning, citing a rise in consumer confidence, consumer spending, home prices, savings rates, business orders, and exports.

"But this is just the beginning," warned the Treasury chief. "Unemployment remains unacceptably high. For every person out of work, for every family facing foreclosure, for every small business facing a credit crunch, the recession remains alive and acute. Growth will bring jobs, but we need to continue working together to strengthen the recovery."

For much of his testimony, Geithner today defended a draft proposal unveiled earlier this week by the panel and the administration to prevent future crises -- in particular, to solve the problem of "too big to fail" institutions.

Winding Down Failing Companies

The measure would give the government power to wind down large failing companies in an orderly manner. The costs of a firm's collapse would not be covered by taxpayer bailouts, but rather by shareholders and other surviving firms with assets worth over $10 billion.

"What you have is the authority to wind them down, to separate the bad from the good," Geithner told lawmakers. "We want the ability to let them fail without the taxpayer being exposed to losses."

However, a number of panel members, from Republicans such as Rep. Jeb Hensarling to Democrats like Rep. Brad Sherman of California, opposed the proposal.

Is Stimulus Working? Or Giving Government Too Much Power?

"You've got in here what I call TARP on steroids. You've got permanent unlimited bailout authority," Sherman said, warning that the measure would give the executive branch "unprecedented powers" to decide – without the approval of Congress – spending, taxes, and "the greatest transfer of money from the Treasury to Wall Street in U.S. history."

"The bill we're considering today would merely institutionalize 'too big to fail,'" said Hensarling.

After Geithner's testimony, the House panel this afternoon was to hear from a slew of other witnesses, including FDIC chief Sheila Bair and Federal Reserve Gov. Dan Tarullo.