Geithner calls for aggressive intervention

By Andrew Ward in Washington

Published: January 21 2009 17:17 | Last updated: January 21 2009 17:17

Timothy Geithner warned on Wednesday that the government must intervene with “speed and force” to rescue the US from its economic downturn as senators met to consider his nomination as Treasury secretary.

Addressing the confirmation hearing, Mr Geithner said quick action was needed to shore up the economy and revive credit flows, warning that the costs of the crisis would be greater if strong measures were not taken.

“The tragic history of financial crises is a history of failures by governments to act with the speed and force commensurate with the severity of the crisis,” he said.

“If our policy response is tentative and incrementalist, if we do not demonstrate by our actions a clear and consistent commitment to do what is necessary to solve the problem, then we risk greater damage to living standards, to the economy’s productive potential, and to the fabric of our financial system.”

Mr Geithner was expected to face tough questions over embarrassing revelations last week that he missed a series of tax payments several years ago. Scrutiny was also likely over his role in the Bush administration’s handling of the financial crisis as president of the Federal Reserve Bank of New York.

But Democrats are pushing for a speedy confirmation so he can start work immediately amid fresh turmoil on Wall Street. Republicans have signalled that they are unlikely to offer serious resistance.

In his opening statement to the hearing, Mr Geithner promised to protect the market system as Treasury secretary but said aggressive intervention and strong regulation were essential to repair the financial system and revive the economy.

“Well-designed financial regulations with strong enforcement are absolutely critical to protecting the integrity of our economy,” he said.

The Obama administration must act with “strength, speed, and care” to put the economy back on track, he added, calling for “aggressive action” in four main areas.

First, he said, the government “must act quickly to provide substantial support for economic recovery and to get credit flowing again”, referring to President Barack Obama’s proposed economic stimulus plan and the Troubled Asset Recovery Programme (Tarp).

He said the stimulus would provide “powerful and direct” support to save and create jobs but warned it must be accompanied by continued action to stabilise the financial markets and keep credit flowing.

He said the Obama administration would “fundamentally reform” Tarp, including widening its goals to provide more help for small businesses and struggling homeowners.

But he added: “We have to fundamentally reform this programme to ensure that there is enough credit available to support recovery. We will do this with tough conditions to protect the taxpayer and the necessary transparency to allow the American people to see how and where their money is being spent.”

Second, he said the administration would make long term investments in strategic priorities such as healthcare and energy to strengthen the foundations for long-term recovery.

Third, he said stimulus efforts must be accompanied by “a clear strategy” to tackle the record budget deficit, which is forecast to exceed $1,200bn this year and restore fiscal responsibility.

“We need to demonstrate with clear and compelling commitments now, that when we have effectively resolved the crisis and recovery is firmly established, that as a nation, we will return to living within our means,” he said.

Fourth, he said, there must be “comprehensive financial reform” so that the US and global economies “never again face a crisis of this severity”.

“In this crisis, our financial system failed to meet its most basic obligations,” he said. “The system was too fragile and unstable, and because of this, the system was unfair and unjust.”

“Individuals, families and businesses that were careful and responsible were damaged by the actions of those who were not,” he added. “We need to move quickly to build a stronger, more resilient system now, with much greater protections for consumers and investors, with much stronger tools to prevent and respond to future crises.”