Secretary Geithner’s View on the Economy and the Bank CEOs

Treasury Secretary T. Geithner appearing Sunday on an interview on CBS’s ‘Face the Nation’ with Bob Schieffer talked about the difficulties facing the economy and its recovery process. Geithner said this process and its progress “is not going to be even. We’re going to have fits and starts. There will be a period where it feels very bad and uncertain.” Geithner also said he sees some “encouraging signs,” pointing out to mortgage interest rates which, he said, are now at their lowest point in history.

Here are few excerpts:

SCHIEFFER: Well, let me take, for example, two of the people your hear a lot about, and one is Citibank and the other is — is Bank of America.

Should the CEOs of those institutions be worried that they may face the same fate as Rick Wagoner did if their performance does not improve?

GEITHNER: Bob, what I’ll say is this. When, in the future — or I’ll just say, if, in the future, banks need exceptional assistance in order to get through this, then we’ll make sure that assistance comes with conditions, not just to protect the tax payer but to make sure this is the kind of restructuring necessary for them to emerge stronger.

And where that requires a change of management of the board, we’ll do that.

SCHIEFFER: You will do that? GEITHNER: Where that’s necessary; where it meets the test; where it’s necessary to do what we, here, exist to do, which is to make sure that this financial system supports recovery and the banks emerge stronger.

SCHIEFFER: Let me ask you about this plan you have put together to create these public-private partnerships to buy these toxic assets that these banks owned to get them off these bank books so they — the idea is that, if they can do that, then they can start lending again.

But last week the government did change the accounting rules. So the banks can, in essence, put a different value on those assets. Some people are now saying that, with this in place, the banks may no longer want to sell those toxic assets.

So I guess the question is, can you get the banks to participate in this program?

And do you feel you have the power to force them to sell those toxic assets?

GEITHNER: Bob, banks have a large incentive, now, to clean up their balance sheets, to make it easier for them to go raise equity from the markets, from private investors. So they’re going to have significant incentives to clean up their balance sheets. This gives them a way to do that that did not exist before that.

Just as an example, you know, if you had to sell your home tomorrow, in a world where nobody could get a mortgage to buy your home, you’d have to sell at an enormously low price.

You’d reluctant to sell. You might end up keeping your home longer than you want, not moving to some — to take a new job, where you can earn more money, going forward.

That’s part of what’s happening to our financial system today.

GEITHNER: So what we try to do is lay out a proposal for how to create a market for these loans, bring in private investors to help protect the government from not overpaying for these assets.

This is just part, though, of a broad set of programs to help address the housing crisis, make sure banks have enough capital to lend even in a deeper recession, make sure we’re providing direct lending to help get small business lending going again. It’s an important part of this — part of this (inaudible) program.
SCHIEFFER: Let me ask you this. Do you think you have the power to force them to sell those assets? Or would you? If you thought that was necessary.

GEITHNER: What we need to do is to make sure they’re emerging stronger, have the capital…

SCHIEFFER: But could you force it? I mean, would that be something in the government’s power, to force them to sell these assets?

GEITHNER: Maybe I should say this, Bob. We’ll do what is necessary to make sure that our banking system emerges out of this stronger.

Schieffer during the interview directly asked the Treasury Secretary if anyone knows where the $700 billion in TARP fund money has gone and what’s being done with it.

GEITHNER: Absolutely. And we — we know. And it’s in the public domain where every dollar has gone. And we made a bunch of new commitments going forward to how those will be used…

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