In an appearance on the CBS program "Face the Nation" on Sunday, Treasury Secretary Tim Geithner addressed a number of key issues regarding the financial bailout.
1. Firing bailed out bank executives:
SCHIEFFER: Some people continue to say that you're going easier on our financial institutions than you are on the auto industry. And this morning, in the New York Post, the chairman of a congressional watchdog panel that's been appointed to watch over these TARP funds says that, frankly, that unless -- there's no way out of this situation that we're in unless you the people that are running these big banks and these financial institutions. What's your response to that?
GEITHNER: Bob, this is a very important issue. Let me just start by saying that, you know, we're five quarters into this recession. And if you look back to the beginning of this process, look at the financials that existed before the recession started, we've already seen a substantial number of the largest banks in our country fail or be absorbed by other institutions, no longer existing at independent institutions.
And where the government has acted, like in Fannie and Freddie or like in AIG, where we've had to do exceptional things to stabilize them, we have replaced the management and the board. And we've done that because we want to make sure that taxpayers' assistance is going to make these companies stronger, make sure there's accountability, make sure it comes with strong conditions. And we'll do that in the future if that is necessary. It's a single standard, a single principle. And our obligation to the American people is to do what's necessary to try to bring recovery back on track as quickly as possible.
Just one last thing: You know, economies depend on financial systems. They provide the credit that's the oxygen for economies. And recovery requires -- and recovery in the automobile industry requires that we have a financial system that is doing a better job of making credit available on reasonable terms for business and families. And that basic objective has to guide everything we do.
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.
2. Toxic asset plan:
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 they need to get through a deeper recession if that's what we face, that they can lend going forward, that they clean up their balance sheets. And we'll make sure that we encourage that kind of action, that kind of behavior.
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. Because, again, you know, economies depend on credit to recover. We want to make sure that they're strong enough that they can lend even if the economy -- even if we go through a longer downturn.
3. TARP cash accounting:
SCHIEFFER: Do you know, Mr. Secretary, how much money has been funneled to these banks? Because some -- you know, there are different estimates. We start out with $700 billion in this TARP fund. Half of it went out. Some people now say -- I think your people say you have around $110 billion left to be used now. But the Center for a Responsible Budget says it's actually only $32 billion. The Dow Jones News Wire says around $52 billion.
Whatever the estimates are, the outside estimates seem to be much lower than what you're giving as a figure, which makes me wonder, does anybody know where this money is? Or how much has been sent 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...
SCHIEFFER: Why is there such disparity with what people say about where this money is? GEITHNER: I'm not sure, Bob, but my obligation is to make sure that we're clear and transparent to the American people about what resources we have remaining, how we're going to use those.
4. Executive compensation
SCHIEFFER: Let me ask you about one more thing. As Will Rogers once said, all I know about this is what I read in the newspapers. But the Washington Post has reported that even after all the outrage about the bonuses at AIG, that the Treasury Department is working out an arrangement now to set up new some sort of entity where they can funnel money to this entity and then it can give the money to these companies and banks that need help. And in doing that, it allows the banks and their executives to evade and go around limits that had been placed on executive compensation by the Congress. Is that right?
GEITHNER: No, that's not true, Bob. Now, our obligation is to apply the laws that Congress just passed on executive comp, and we're going to do that. Now, we're also going to make sure these programs are as effective as possible in making credit more available to businesses and families across the country. Now, the way the legislative process works is Congress legislates. We have an obligation then to design and put out regulations for applying that. We'll put those out in draft. The American people have the chance to evaluate those and assess and comment on those.
We're working with Congress as we do this. And -- but again, our obligation is to apply those laws, and we're going to do that because it is very important to us that every dollar of assistance we provide doesn't -- goes to expand lending.
SCHIEFFER: But are you saying to me -- and we'll close with this -- that every limit that Congress has put on executive compensation, that you're going to see that that's enforced and that these -- there's not going to be a way to get around that?
GEITHNER: Absolutely, because we want the American taxpayers -- this is going to generate greater lending, not providing excess compensation.
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