Geithner Pledges Forceful Attack On Banking Crisis
MADELEINE BRAND, host:
From the studios of NPR West, this is Day to Day. I'm Madeleine Brand. Coming up, what we can learn from the Japanese; Japan had its lost decade, then the government spent billions. What happened and what the U.S. should do differently; that's coming up. But first, TARP, Part II. Today, Treasury Secretary Timothy Geithner revealed how the government plans to spend the second half of the Wall Street bailout money, $350 billion. The first half did not accomplish what its promoters had hoped. The credit markets are still not functioning as they should. So, the Obama administration has now come out with a multipronged plan to try to fix those things. Joining us to look at them is NPR economics correspondent Adam Davidson. Adam, first off, tell me, what did you think of his speech, Tim Geithner's speech?
ADAM DAVIDSON: I've got to say, Madeleine, I need to step out of the role of objective journalist for a minute and just say, this was a great speech. This was the first time in - what is it now? - a year and a half, two years, of financial crisis that a government leader really spoke that clearly, that forcefully, actually willing to place blame and to, in a clear, precise way, lay out where we are, why we're in a worse place than we need to be, and where we need to go. Now, we can get into the plan itself and there are issues there - I'm not fully endorsing everything - but just as a piece of theater, I loved this speech. I think we have an excerpt from the time when he beat up on bankers.
(Soundbite of congressional testimony, February 10, 2009)
Secretary TIMOTHY GEITHNER (U.S. Department of the Treasury, Barack Obama Administration): Investors and banks took risks they did not understand. The rewards that went to financial executives departed from any realistic appreciation of risk. There were systematic failures in the checks and balances in our system. Our financial system operated with large gaps in meaningful oversight and without sufficient constraints to limit risk.
BRAND: So, there he is being pretty forceful, Adam. What's in the plan that's actually going to back up those words?
DAVIDSON: Well, that's exactly the issue here, is...
(Soundbite of laughter)
DAVIDSON: Is this was a piece of rhetorical theater that was quite interesting. He's beating up on the bankers; he's saying they really messed up. He's also really beating up on the government, saying the government messed up. He doesn't actually come out and say, I personally messed up, but that's a clear implication of what he said. But there isn't the kind of forceful stuff that a lot of people in Congress, a lot of people just on the street, everyone I talk to, wants to see, which is stuff that prevents the people who caused this crisis from continuing to make a lot of money and continuing in their jobs. He is - he, apparently, according to some great reporting in the New York Times, fought against those tough rules that would've really punished the bankers.
So - now, I want to step back in to that objective reporters role here and say that he is in, this speech, I think, playing a very interesting rhetorical game, which is he is very forceful, saying the government messed up really badly, individual bankers messed up really badly, investors messed up really badly, and he's very attacking of them. I mean, saying, you know, this is really, really bad what they did, and it sort of feels like he's about to really beat up the banks and impose the kind of restrictions that a lot of people in Congress, a lot of others want, that, you know, a lot of this big executives won't get paid so much, that they'll be fired, that banking - bank investors will lose their money. That's not what he's doing. He's not doing that tough stuff. He's talking tough, but he's not acting tough. And you have to really dig in to the plan to realize that.
BRAND: And then, what's his argument?
DAVIDSON: Well, I think the argument is that we have, right now, this week, this month, right now, we are in a systemic crisis that we still, even this long into this crisis, have the real possibility of a collapse of our economic system, and that the need to shore-up the system is far higher, right now, than punishing the wrongdoers. That will come later.
BRAND: OK. So, what came today in terms of this package? What's in it?
DAVIDSON: Well, there's a multipronged approach, with - he actually said we won't get all the details until the next coming weeks. For example, there is apparently going to be a pretty comprehensive effort to help people who are facing foreclosure, people who might lose their homes, but that, he said, will come in a few weeks, I think was the phrase he used. There's also a trillion-dollar plan to help consumers get borrowing. So, you know, people like you and me, so that we can get more credit cards, we can buy cars, all of that kind of thing. We don't have all the details there. And then there's a very - there's a more comprehensive plan for dealing with the banks' troubled assets. The details are complicated, and we're going to be analyzing them over the coming hours and days, but basically, it's neither the - there was an idea of a solution where the government just buys all the stuff. That's not what he's doing. But he's also not leaving it fully up to the free market. There's going to be a public/private partnership, where the government steps in and basically helps private investors buy this stuff by taking away some of the risk. So, that does mean that taxpayers will bear some of the risk of these toxic assets.
BRAND: Right, and that's what's gumming up the whole system, right? These toxic assets that were on the banks' books? So, the idea is to get private investors to come in and buy them, but then, how do they know what price they should pay for them?
DAVIDSON: Well, that's always been the issue, that the people who want to buy these things will only pay a very small price, maybe eight or 10 cents on the dollar, whereas the banks that own the assets don't want to sell them until they're much higher, 60 cents, 70 cents, on the dollar, and basically, the government is going to try and come in and somehow split the difference, get the people buying them to pay more by getting a government subsidy and convincing the banks to sell them at that lower rate. This all gets kind of technical, but it is a very difficult thing to solve. But if they do, our economy will do much better.
BRAND: Adam Davidson is part of the NPR Planet Money team. You can check him and the others out at npr.org/money. Thanks, Adam.
DAVIDSON: Thank you, Madeleine. Transcript provided by NPR, Copyright NPR.