Transcript: Timothy Geithner Interview with George Stephanopoulos

April 22, 2010 — -- "Good Morning America" anchor George Stephanopoulos interviewed Treasury Secretary Timothy Geithner in Washington, D.C.

The following is a transcript of the interview, which took place on Wednesday, April 21, 2010.

GEORGE STEPHANOPOULOS, HOST: Mr. Secretary, thanks for doing this.

TIMOTHY GEITHNER, TREASURY SECRETARY: Happy to do it.

STEPHANOPOULOS: The president seems to be on a crusade with his financial reform. And I wonder if you can just break it down for everyone watching at home. How is this going to make a difference in -- in the lives of every average Americans?

GEITHNER: Well, one way to think about it is just to look at what happened in this financial crisis. You know, it caused eight-and-a-half million Americans to lose their jobs. You saw thousands of businesses fail. You saw people wake up and see their savings just plummet in value – huge amount of damage to the American economy. This is what financial crises do. And they're deeply unfair, because the damage is indiscriminate. The pain is indiscriminate. You know, it captures -- it doesn't just hit the people who were responsible, it hits a huge amount of innocent victims. So we have huge obligation to act to prevent that. And what reform will do, it won't just bring more transparency and disclosure to these markets, but it's going to bring basic protections to consumers and investors we did not have. And it's going to bring tough limits with teeth on risk-taking to prevent these kind of large firms from taking us to the edge of -- of the abyss again.

STEPHANOPOULOS: And you think you will get a bipartisan deal?

GEITHNER: I think we will, yes. I mean I -- again, I've spent a huge amount of time up there on both sides of the aisle, a lot of time with Republicans, too. And people I've talked to want to be for a strong bill, not just -- everybody says they're for reform now, George, because you can't be against reform given what happened. But what matters is are they going to be for strong reforms? And, again, based on what I've heard and what they tell me, they want to be for strong reforms.

STEPHANOPOULOS: There are a lot of people who are questioning whether what you're pushing for is strong enough. I mean you've got a situation now where the six biggest banks in the country have assets equal to more than 60 percent of the GDP. Why shouldn't those big banks be broken up?

GEITHNER: This is a very strong package of reforms. It's going to set limits we've never had in place on risk-taking across the system -- limits on how large firms can be and how risky they can be. And if -- if -- the best measure of whether this is tough is -- you know, we've been doing this for 14 months. There's enormous resistance, still, across the U.S. financial community and by large institutions around the world to what we're trying to work through. That's why it's been so hard to get this done, because people recognize this is very tough. It's going to transform the role of our financial system in the economy and make it much more stable, give people much more protection.

STEPHANOPOULOS: Yet they're fighting it at a time when these banks are just making staggering profits. I mean, Goldman Sachs -- 27 percent profits. You can't find a business where you make profits at that level. And it's a sure sign, isn't it, that there's not enough competition?

GEITHNER: No, I don't believe that. But I think most of what you're seeing now, George, in the -- in the American economy, is, again, the economy is really getting stronger. I mean there's -- the economy is growing again. Private investment is expanding. People are starting to spend more. Exports are growing. And as that's happened, you're seeing, you know, the normal signs of recovery happen across the American economy. And that's a good sign. It's a healthy sign. But, again, we're still living with the financial system that brought us this crisis. And so we have huge obligation, I believe, huge responsibility now to make sure we're putting in place tough reforms now.

STEPHANOPOULOS: But why isn't it a good idea to do something about the size of these banks?

GEITHNER: Well, that...

STEPHANOPOULOS: Aren't they still too big to fail?

GEITHNER: We -- we agree. Our -- our view is absolutely. And our view is that we need to make sure that you're limiting how big they can get and how risky that they can get. But if, in the future, if they mess up and they take themselves to the edge of the cliff again, then we want to make sure we can put them out of existence, dismember them, break them up safely without the American taxpayer having to bail them out again. That's very important. That's a critical part of this bill.

STEPHANOPOULOS: It's a critical part, but is it true that you're no longer pushing as hard as you were for a fund paid for by the banks?

GEITHNER: Oh, a...

STEPHANOPOULOS: To fund that resolution authority?

GEITHNER: A very important issue, again, what everybody agrees with, I believe, is that you should never have the taxpayers in the position again where they have to be exposed to bailing out these institutions. So our view is, again, you want to have a system in which we can fail them safely. We can put them in a form -- through a form of bankruptcy and not have the taxpayer exposed to any risk of loss. So if the government is ever exposed again to taking any risk in these things, cleaning up these messes, we want to make sure that the banks are the ones paying for those costs.

STEPHANOPOULOS: So you're confident that if these reforms are put in place and 18 months down the road we face another situation like Lehman Brothers situation, whether it's now Citigroup or JP Morgan, Morgan Stanley, whichever bank, you take your pick -- Goldman Sachs, you're confident that the government will not step in and save them?

GEITHNER: Oh, absolutely. Absolutely. And that's very important for people to understand, because you can't run a system in which private investors or their executives can take risk on the expectation the government is going to come in and protect them. That's a recipe for disaster.

STEPHANOPOULOS: But that's what's been happening, isn't it?

GEITHNER: That's what happened before and we're not going to allow that again. And, again, the most important things in this bill are, besides the transparency and disclosure –provides-- besides providing protection for consumers against the kind of predation you saw in subprime mortgages. Is to make sure that we're limiting risk-taking by these institutions, limiting how big and how risky they can get. But if they mess up in the future, we're going to put them out of existence without that causing loss to the taxpayer or catastrophic damage to the economy as a whole.

STEPHANOPOULOS: The International Monetary Fund is suggesting that all the big industrial nations have a tax on bank balance sheets and bank profits. I know the administration has pushed for a bank fee. Will you continue to push for this and do you support that IMF report?

GEITHNER: Well, that's a very good report. It did what we asked for last September, which is take a look at how best to do this. But, you know, the president proposed in January that we put a fee on risk, on the largest institutions, as a way to pay back the taxpayer for any losses in the TARP. So we've been able to put out this financial fire at much lower costs than we expected. But we want to make sure the American people understand that we want the banks to pay for any losses the government -- the taxpayer was exposed to because of the financial emergency.

STEPHANOPOULOS: Let's talk a little bit about Goldman Sachs. You saw the SEC is taking action against Goldman Sachs. Did anyone in the Obama administration, in Treasury, in the White House, in the government, get any heads up?

GEITHNER: Absolutely not.

STEPHANOPOULOS: Nothing?

GEITHNER: And again, the -- that could never happen, it should never happen. It's a fully independent agency and they give no warnings, no notice, no heads up. And there should be no involvement by any person in the executive branch ever in those kind of investigations. And I'm very confident our system protects against that risk.

STEPHANOPOULOS: And I know you can't talk about the investigation per se, but how about the underlying issue? You know, as we look at this, it raises -- it seemed as if -- well, not seemed as if. Goldman was putting together a pure bet. There is no...

GEITHNER: George, you're -- you are trying to ask me to comment on the merits or the details of the case or the practice.

STEPHANOPOULOS: No, I, I'm…

STEPHANOPOULOS: Not on -- not on the practice. Say it's--we're not going to call the firm Goldman. These firms are setting up what are called synthetic CDOs, collateralized debt obligations. These are just bets. Why should firms who are getting backing from the federal government be allowed to do this at all? We end up paying, don't we?

GEITHNER: Let me do it slightly differently, because, again, I want to be careful. There's an important tradition of not commenting on enforcement of banks or -- or their merits. But what you need to have is a system in which this stuff happens not in the dark --where people -- some people can make some money, but it comes at enormous risk to the system as a whole, but we bring derivatives out of the dark so those types of activities happen in broad daylight with full disclosure and with the cops able to police this stuff more effectively. You know, we don't -- we want to have a system in which the financial cops can act preemptively to deal with these kind of things, not be forced to come in after the fact and clean up the mess. And that's the kind of system we want to build. But that's what's at stakes. You want to make sure you bring this stuff out of the dark, it happens with full transparency and disclosure, and the cops on the beat have the tools they need to deter this stuff -- any kind of fraud, any kind of activity, ahead of the crisis.

STEPHANOPOULOS: I understand that for private firms. But when you've got private firms who have no connection with the federal government, but when you've got these banks who are getting so much -- so many subsidies from the federal government, why should they be allowed to do this?

GEITHNER: Well, what...

STEPHANOPOULOS: It's very risky.

GEITHNER: No what -- you're exactly right. What the -- it is an obligation of government -- and, in some ways, this was the failure of the system we had, that, you know, we had in place for 70 years after the Great Depression. But it -- the markets just outgrew it. The obligation of government is to prevent firms from taking risks that could imperil the economy and to prevent people from taking advantage of their customers. Those are obligations of policy and government. We did not do a good job as -- as a country in preventing those things and that's the centerpiece of what the reforms are trying to establish.

STEPHANOPOULOS: How concerned are you that these big banks are getting scapegoated by the public and that -- and this is going in another direction -- and that government could end up going too far?

GEITHNER: I -- I'm not concerned about that now but it's important for people to understand, you cannot separate, really, Wall Street and Main Street. They're deeply connected. And as we learned in this crisis, when bad things happen in banks and you don't have the tools to manage those things, the effects are sweeping, [INAUDIBLE] --a huge amount of damage to the innocent. So it is very important to the country that we have a stronger, more stable financial system that provides better protections. And what our system does, it does very well and we want to make sure it does well in the future, is make sure it takes the savings of Americans and channel those to growing companies so that we're growing faster as a country, we're financing future innovation. That's what our system used to do extraordinarily well. It still does very well. We're going to make sure it emerges in a stronger position to do that in the future.

STEPHANOPOULOS: But that's not exactly what's happening in the last year or so, is it? I mean banks have been -- gotten these incredibly low interest rates. That's taken money out of people that hold bank accounts. Yet we haven't seen the banks lend that money at the right rates back into the economy.

GEITHNER: Actually, it's -- it's really much better than that, George. When -- again, when the president took office, nobody could get credit. No banks were lending. People could not borrow money. They could not issue equity. And because the president moved so quickly to bring transparency back to the market, force banks to go raise private capital and repay the taxpayer, borrowing rates for companies, for individuals, whether you want to buy a house or a car, for municipal governments, are dramatically lower today than they were when we came into office. So credit is much more available. And that's why the economy is now growing again. Now, it's still hard in parts of the financial system because, you know, this crisis caused amount of damage. But credit is much more affordable today, much more available, not just when we came in office, but than anyone expected because...

STEPHANOPOULOS: So, are you satisfied with the amount of credit banks are putting out right now?

GEITHNER: Well, I think that -- our -- our view is still is that in small businesses, in particular, in some industries in some parts of the country, it's still very hard for them. And we're working very hard with the Congress to try to make sure we're doing additional things to make sure that small banks across the country can get access to capital from the government so they can better support their small business customers. So it's still very tough, because, again, there's amount of damage caused by this crisis. But generally, across the economy, it's much easier to borrow money to buy a car, to buy a house, to put your kid through college, municipal governments to raise money to finance school construction, not just large businesses, but businesses across the country.

STEPHANOPOULOS: We were talking about derivatives a moment ago. There's now a proposal to have movie futures traded. Do you think that's a good idea?

GEITHNER: No, I don't -- here's what I think about this, George. The financial sector will be creative and will innovate and will come up with products that meet some real need people have and to also come up with those products which are designed to help people bet on some basic outcome. That's going to happen. It's a necessary part of running a good financial system. But those things come with risks. And our job, our obligation is to make sure that we're reducing those risks, we can contain the damage when those financial innovations go awry. And again, you need the government equipped to do a better job earlier, preemptively, to limit the risks that come with innovation.

STEPHANOPOULOS: So they shouldn't be banned?

GEITHNER: Well, you can't -- you can't stop innovation. You can't run a system where you have a bunch of bureaucrats in Washington trying to figure out what's risky and what's not, because the risk is they'll miss it, they'll be too late, or they'll overdo it. So the best thing we can do for the country is to make sure the system just has better protections in place when innovations go a little too far.

STEPHANOPOULOS: What's the one word you would use to describe the economy today?

GEITHNER: Stronger. Absolutely stronger. Again, encouraging signs of, really, across the economy of things in the better. Parts of the economy are really very strong. Technology. Manufacturing is getting better. You heard some very good news that G.M. is repaying the government, adding new jobs, a much stronger position than they -- than they were. And the automobile industry as a whole, just to give one example, has created more jobs in the last nine months than -- more rapidly than at any time in the last decade. So, again, because this is a lesson for the country and a lesson for future presidents, this president acted very quickly, with enormous force in doing things that were going to be unpopular. But because he moved so forcefully up front, the economy is stronger now than any of us expected. It's come back quicker and stronger than almost any of the major economies around the world. And, of course, we all recognize that it's still very tough. It's still a very tough economy out there. There's still enormous pain and damage out there across the country. And we have more work to do to heal what was damaged. It's going to take some time. But we're in a much stronger position today.

STEPHANOPOULOS: A hundred and sixty thousand new jobs created last month. Job growth throughout 2010?

GEITHNER: It may not be completely even and steady, but, again, I think you're going to see the economy is going to strengthen gradually. That's going to translate into more jobs, more rapid income growth for all Americans. And that's going to help heal what was broken.

STEPHANOPOULOS: How do we deal, though, with the long-term fallout from all of this? You know, you've seen the number of long-term unemployed in America skyrocketing in the last couple of years. Even with job growth at the beginning of this decade, you had wages just flat.

GEITHNER: You did.

STEPHANOPOULOS: How are you going to create an economy that actually creates rising incomes for all Americans again?

GEITHNER: First, you have to make sure that we're growing as a country. That's very important. And we are growing and we've been growing now for nine months. That's a critical, necessary condition. And, of course, you see the president working very hard to make sure that growth translates into more jobs. That's the best thing you can do for economic security, for income growth. But the reforms he's putting in place in education are very important to make sure we're going to come out of this stronger, our kids are going to graduate with a better capacity to compete in this market and this global economy and we're investing in infrastructure, clean energy technologies, huge incentives for technology innovation, research and development. Those are the kind of things we need to do to make us stronger as a country.

STEPHANOPOULOS: I was walking down the halls they have all these portraits of your predecessors as Treasury secretary with little essays explaining what they did. What do you want the first line or your essay to be?

GEITHNER: That I came and helped this president pull the U.S. economy out of the worst economic crisis since the Great Depression and then moved to reform the financial system and build a stronger foundation for future growth for the country.

STEPHANOPOULOS: And you're going to be here for how long?

GEITHNER: For as long as the president asks me to be here.

STEPHANOPOULOS: Mr. Secretary, thanks very much.

GEITHNER: Nice to see you, George.

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