Geithner Says Some Banks Need ‘Large Amounts’ of Assistance
By Ryan J. Donmoyer
March 30 (Bloomberg) — U.S. Treasury Secretary Timothy Geithner said some financial institutions will need substantial government aid, while warning against any attempt to tax investors who join a federal program to buy tainted assets from banks.
“Some banks are going to need some large amounts of assistance,” Geithner said yesterday on the ABC News program “This Week.” The terms of a $500 billion public-private program to aid banks “cannot change” for investors or they’ll lose confidence in the plan, he said on NBC’s “Meet the Press.”
The Obama administration is pursuing the most costly rescue of the U.S. financial system in history while facing taxpayer concerns the aid is bailing out Wall Street firms that took excessive risks. After allocating about 80 percent of $700 billion in aid approved by Congress, administration officials want to keep open the option of seeking more.
Geithner said the Treasury has about $135 billion left in a financial-stability fund while declining to say whether he will request additional money.
“If we get to that point, we’ll go to the Congress and make the strongest case possible and help them understand why this will be cheaper over the long run to move aggressively,” he told ABC News.
Geithner announced this month a plan shore up the nation’s banks with a public-private partnership to finance the purchase of illiquid real-estate assets. The program will ensure banks emerge from the crisis “cleaner” and “stronger,” Geithner told ABC News.
Purchasing Bad Debt
The plan is designed to purchase as much as $500 billion of bad debts and securities from banks, allowing the institutions to remove tainted assets, attract private capital and resume active lending, according to Geithner.
“The great risk is that we do too little rather than too much” to revive credit and stem what economists say may be the worst recession in seven decades, he said.
Banks need to show more willingness to take risks and restore lending to businesses in order for the U.S. economy to recover from the recession, Geithner said.
“To get out of this we need banks to take a chance on businesses, to take risks again,” he said.
Increases in housing purchases and small business lending indicate government aid is reviving markets, he said.
“Where we are acting, we are seeing progress and impact,” Geithner said on NBC yesterday.
Geithner defended the public-private partnership by saying it was better than the alternatives of requiring banks to weather the crisis with limited federal backing or having the government buy the financial institutions’ toxic assets.
Money at Risk
“The investors are taking risk, their money is at risk and at stake,” he said. Allowing investors to leverage their money with government contributions and guarantees “is a relatively conservative structure,” similar to when an individual obtains a mortgage to buy a house, he said.
Geithner’s comments are part of an effort by the Obama administration to leverage public anger over the financial crisis to win support for giving theTreasury sweeping new powers.
The public-private partnership plan has been criticized by Nobel Prize-winning economist Paul Krugman and other analysts as eliminating risk for investors.
Arizona Senator John McCain, the Republican nominee for president last year, said that while he hopes the new plan works, the Treasury’s efforts to bolster the economy have suffered from “a great deal of incoherency for a long time. It seemed like every few days there was a target du jour.”
Most members of Congress probably wouldn’t support a request for new bailout funds because they aren’t clear about how the government used the $700 billion authorized in the first legislation, McCain said.
“We still don’t have the transparency and oversight,” McCain said on “Meet the Press.” He said his biggest concern is that the cost of stemming the financial crisis will worsen annual deficits projected to exceed $1 trillion for many years.
“What I am most worried about is laying the debt on future generations of Americans,” he said.
When asked on “This Week” whether Treasury had enough resources to provide a similar level of aid to struggling U.S. automakers, Geithner said the administration was “prepared as a government to help that process.”
“We want to have a strong automobile industry,” he said. “We want it to emerge from this period of challenge stronger.”
“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.”
Separately, Geithner called on Latin American and Caribbean countries to help revive global growth by safeguarding free trade and stimulating their economies through “all available tools.”
The U.S. and other nations “need to affirm our commitment to maintain open policies toward international trade and investment and to avoid protectionist measures that could threaten recovery,” Geithner said yesterday at the Inter- American Development Bank meeting in Medellin, Colombia. He called on “international institutions” to quickly provide aid.
Geithner proposed last week bringing large hedge funds, private-equity firms and derivatives markets under federal supervision for the first time. A new systemic risk regulator would have powers to force companies to boost their capital or curtail borrowing, and officials would get the authority to seize them if they run into trouble.