'GMA' Exclusive: Treasury Secretary Timothy Geithner

Sept. 15, 2009— -- A year after the collapse of Lehman Brothers, Treasury Secretary Timothy Geithner spoke to "Good Morning America's" Diane Sawyer today about the state of the economy and why he is optimistic about the country's recovering from the worst economic crisis since the Great Depression.

Geithner addressed the difference between now and a year ago, when the collapse of Lehman Brothers signaled the start of an economic plunge.

"It's dramatically different," Geithner said in his first morning-television interview. "You know, a year ago, we really were on the verge of a full-scale run, a classic panic. People were starting to think about taking their money out of banks. It hadn't happened in a century. There was just real fear … economic activity effectively stopped around the world. Things just came to a grinding halt."

Geithner said that while he cannot guarantee that another economic crisis will never happen again, the government has an obligation to establish policy to help avoid a repeat.

Click here to read a full transcript of the interview.

President Barack Obama Monday called for immediate congressional action on regulatory reform during his speech at Federal Hall in New York City's financial district, legislation that has been sidelined during the health care overhaul debate.

"The biggest challenge is to make sure we change the rules of the game so this doesn't happen again," Geithner said. "Rules that'll protect consumers better. Make the system much more stable. That's the obligation of governments."

The U.S. Deficit and Taxes

Thousands of protestors took to the streets in Washington, D.C., this weekend to oppose the amount of money the federal government is spending.

The Treasury and the Federal Reserve have invested more than $4 trillion at its peak in 28 government programs to stem the financial crisis. The Congressional Budget Office predicts the U.S. deficit will reach $1.6 trillion by the end of 2009.

The U.S. Deficit and Taxes

Geithner said the country found itself in this situation because it borrowed too much.

As of June 2009, China owns $776 billion of U.S. debt while Japan owns $712 billion. Britain and Russia own $214 billion and $119 billion, respectively, according to the U.S. Department of Treasury.

"We lived beyond our means," Geithner said. "Both as a country, many businesses did it, many families did it. Obviously the financial sector did that. And part of what's going to make this so hard to get out of this is we have to go back to a point where we're saving more. The government had to do some deeply offensive things to help contain the damage. And we will get out of that as quickly as we can."

When asked whether the Obama administration will have to raise taxes, Geithner said the American people should be confident in the government's response to the crisis so far.

"I think Americans understand that we have an unsustainable fiscal position," Geithner said. "That we're going to have to bring those deficits down over time."

But the secretary said the president remains committed to his campaign promise to not raise taxes on Americans earning less than $250,000.

"He feels very, very strongly about that," Geithner said. "And we can get our fiscal house in order. We can go back as a country to the point where we're living within our means without violating that basic commitment."

According to an ABC News/Washington Post poll, 47 percent of those polled said that someone in their household has either had a pay cut or lost a job in the past year.

Also, nearly half of U.S. households suffered a direct financial impact while the average Wall Street salary ranges from $500,000 to $600,000, according to Bloomberg News.

"It's not fair," Geither said. "And that's the tragedy of financial crisis, is that the people who were responsible, they were careful, had nothing to do with the cause of the crisis, bear a huge amount of the burden."

Despite the government's efforts, he said, there is still no recovery -- yet.

Jobs and Unemployment

"We define recovery and the president will define recovery as people back to work, people able to get a job again, businesses investing again," he said. "And we are not at the point where we can say that yet."

Nearly 6 million Americans lost their jobs in the past year and the unemployment rate is now at 9.7 percent.

"What we can say is that we will do everything sensible, everything we think is effective, to help get growth back on track. Help bring unemployment down," Geithner said.

He said he knows many people, personally, who have lost their jobs.

It is "very likely" that Congress will extend unemployment benefits, he said, adding that it should be done.

The Debate to Extend TARP

Geithner said the government has not decided whether to extend the Troubled Asset Relief Program (TARP) that expires at the end of the year or if it will continue with tax credits for first-time home buyers.

"I think people need to understand, we're going to do what it takes to make sure we repair this damaged system. And we get growth back in track," Geithner said. "The range of things in the recovery act that were very important, very helpful in bringing growth back. And we'll take a careful look at which of those deserve some temporary extension."

When questioned if the government will be out of the auto industry within a year, Geithner, who has the power to extend TARP relief to the industry until next year, said the government would leave the business as soon as possible.

"I think it is going to take longer than [one year], just to be honest and realistic," Geithner said. "If you look at the financial system, where what the government had to do was very dramatic. You're already seeing the government unwind, walk back, reverse a lot of the exceptional things that we had to do."

Bundling and Securitizing Life Insurance Policies

The New York Times reported last week that Wall Street is now looking toward bundling and securitizing life insurance policies. Should the policy holder die early, the investors could receive a bigger return, according to the Times.

Some people argue that such a practice should be prohibited.

"We're proposing to establish in one place responsibility to write strong rules to protect consumers and investors and to enforce those rules," Geithner said. "But the reality is we need a system that does a better job, again, of protecting consumers and investors and provides for a more stable system, less prone to these big bubble and bust cycles."

Curbing Executive Bonuses

Since the financial crisis, there has been outrage at the amount of bonuses awarded to executives.

A judge has ruled that Bank of America must go to trial for not disclosing $3.6 million in bonuses issued to Merrill Lynch executives before Bank of America bought the company.

The G-20 group will meet next week in Pittsburgh and one of the expected topics on the agenda is curbing executive bonuses.

Geithner says the president is ahead of the G-20 in pressing for reform of executive compensation.

"We're committed to strong reforms of compensation practices," he said. "But that's only one part, Diane, of what it's going to take to make the system more stable, more fair in the future."

A Trade War With China?

Obama Monday defended his administration's decision to impose higher tariffs on imported Chinese tires.

"This administration is committed to pursuing expanded trade and new trade agreements," Obama said. "It is absolutely essential to our economic future. But no trading system will work if we fail to enforce our trade agreements."

China complained to the World Trade Organization about the increased tax. Shortly thereafter, China announced it would launch an investigation to determine whether the United States is selling chicken and auto parts below the cost of production.

Despite the back and forth between the countries, Geithner said there will be no trade war with China.

"Not going to happen," he said. "I think, you know, this is just a relatively small example of a basic principle, which is, rules are rules. The system requires that we enforce the rules of the game. I think China understands that. There's no reason why this has to be a big deal."

Geithner's Darkest Moment

Meanwhile, the Treasury secretary admitted that the day Lehman Brothers collapsed was his "darkest moment." But he insisted that the future will be brighter for the U.S. economy.

"A year from now … growth will be stronger, unemployment will be lower, it will be easier to find a job, incomes will be growing more rapidly, people will able to be more confident in the value of their savings," Geithner said. "But, again, it's important for people to understand, it took a while to get into this. It's still going to take a while to get us out."