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Tim Geithner Is Starting to See Daylight


While the Troubled Asset Relief Program is winding down, it will still be used to aid small banks. On Dec. 9, Treasury Secretary Tim Geithner exercised his option to extend the TARP bailout program until October 2010. And according to Bloomberg.com, House Majority Leader Steny Hoyer has suggested that lawmakers may seek to finance job-creation measures with unused TARP money. In a talk with Bloomberg TV's Al Hunt on Dec. 4, Geithner spoke about the unemployment crisis and the debate over so-called Tobin taxes, a proposed global levy on financial transactions to discourage destabilizing speculation. Here are excerpts from the interview.

AL HUNTUnemployment has dropped to 10%. Do you believe the jobs market has now turned?

TIMOTHY GEITHNERThere's been progress, but not good enough. The key test is when you see companies across the country start adding to payrolls. There are hopeful signs—pockets of real strength in technology and exports—but we've got a ways to go.

What is the probability that the jobless rate will be below 10% a year from now?
Quite high. You said there's a pretty good case for a tax credit for hiring new workers. [Former Deputy Treasury Secretary] Roger Altman, your friend and philosophical soul mate, has written that there should be a $5,000 employer credit for each net new job. That might add as many as a million and a half new jobs. Can you support that?
The President is looking at a range of ideas, including tax incentives to spur job creation and hiring. But just to be frank about it, there are a lot of people in the business and academic communities who are not confident that this particular proposal would be that powerful.

So you don't think it would add a million and a half jobs?
Personally I wouldn't associate myself with any estimate of what these things might actually do. That's just too hard to judge. We're taking a look. But I wouldn't say right now we're confident that [this proposal] is going to provide the most powerful bang for the dollar.

The Tobin tax is a levy on global financial transactions once favored by Larry Summers, now pushed by Gordon Brown, Warren Buffett, and others. You've been a naysayer, I thought. But House Speaker Nancy Pelosi said after a conversation with you that you are now open to the idea. Are you?
What I'm open to is looking at a range of different ways of achieving its objective.

You're saying that the Tobin tax is not a very workable idea?
Yes. I have not seen a version that I think works. You were the head of the New York Fed in the middle of the financial crisis. Some Goldman Sachs (GS) executives have recently said their firm would have been O.K. without assistance from the Federal Reserve and others last year. Is that your view?
My view is this: The entire U.S. financial system, all the major firms, and even small banks were at that moment in the middle of a classic bank run. I think the system was at risk and none of the big institutions would have survived a situation in which we let that fire try to burn itself out.

A number of banks and firms that have repaid the government are planning record yearend bonuses. Is that O.K. with you?
No, our judgment is we have to end that era of irresponsibly high bonuses that helped create the incentive for excessive risk-taking. We want to see fundamental constraints on how senior executives are paid at these institutions so that their compensation is much more tied to long-term gain.

As we mentioned, you were president of the New York Fed. And big banks have a major influence in selecting that person. Given the enormous importance of that job, shouldn't the head of the New York Fed be appointed by the President subject to Senate confirmation?
I would be completely supportive of the Congress taking a look at that...because you do not want to have any public institution in the position where its judgments may be viewed as subject to the influence of the financial community.

Does the Obama Administration have a clear, coherent economic message?
Our responsibility is to make sure that we repair what is broken in this economy...and do all those things critical to creating the kind of environment in which private business can flourish. This crisis not like anything we've seen before because of the intensity of the financial fire. But the problems America faces today are not just because of the recession. They are the result of a sustained period where we saw public policy just not doing what needed to be done.

Most experts from Wall Street and academia give you high marks for understanding the policy matters that confront the Treasury. You really know this stuff. Let me ask you to give yourself a grade as chief economic spokesman for this Administration.
Look, I'm a tough grader. I have a good awareness of things that I'm reasonably good at and the things that I'm going to work very hard to get better at.

You're not quite at the A level yet?
No. I would never give myself an A on anything.

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