Obama scrambles on Geithner, bailout concerns

WASHINGTON Tue Jan 13, 2009 6:52pm EST

President-elect Barack Obama makes a speech on the economy at George Mason University in Fairfax, Virginia, January 8, 2009. REUTERS/Jim Young

President-elect Barack Obama makes a speech on the economy at George Mason University in Fairfax, Virginia, January 8, 2009.

Credit: Reuters/Jim Young

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WASHINGTON (Reuters) - President-elect Barack Obama on Tuesday scrambled to answer questions about the nomination of Treasury Secretary pick Timothy Geithner amid anguished congressional negotiations over a $350 billion financial bailout.

The twin troubles emerged for Obama as he attempts to lay the groundwork for a strong response to the U.S. economic crisis a week before he takes over the presidency.

Geithner faced questions about a housekeeper who worked briefly for him without proper immigration papers and about several years when Geithner did not pay Social Security and Medicare taxes for himself.

At his request, Geithner met with members from both parties on the Senate Finance Committee after Iowa Sen. Charles Grassley, ranking Republican on the committee, raised questions about the issues. Grassley made no immediate comment to reporters after the meeting.

The normally drama-free Obama team went into a rare episode of damage control.

Obama's White House spokesman, Robert Gibbs, said in a statement that Geithner -- the president of the New York Federal Reserve Bank whose selection by Obama as Treasury chief in November cheered U.S. financial markets -- had committed honest mistakes that he quickly addressed upon learning of them.

"He made a common mistake on his taxes, and was unaware that his part-time housekeeper's work authorization expired for the last three months of her employment. We hope that the Senate will confirm him with strong bipartisan support so that he can begin the important work of the country," Gibbs said.

HICCUPS FOR GEITHNER NOMINATION

Senate Majority Leader Harry Reid, a Nevada Democrat, said he was not concerned at all over the Geithner nomination.

"There's a few little hiccups but that's basically what they are," he told reporters.

New York Democratic Sen. Charles Schumer said he strongly backed Geithner while Max Baucus, a Montana Democrat, said that Geithner corrected the tax errors as soon as they were brought to his attention.

"I believe that these areas while serious, do not rise to the level of disqualification. He's an extremely competent man," he said.

No date has been set yet for Geithner's hearing before the Senate finance panel. His nomination needs approval by the full Senate.

Similar problems have sunk previous nominees. In 1993, President Bill Clinton had to withdraw two nominees for attorney general, Zoe Baird and Kimba Wood, for hiring undocumented immigrants as nannies.

Transition aides said Geithner, before becoming New York Fed president, worked for the International Monetary Fund from 2001 to 2003.

They said he paid all of his income taxes on his IMF income, but made a common mistake on his tax returns with regard to self-employment taxes. Geithner realized the error in November during the review process for his nomination.

The aides said he voluntarily corrected the mistake by paying a total of $25,970 in taxes for the two years.

At the same time, Obama used a closed-door lunch with Democratic senators on Capitol Hill to lobby for the second half of the outgoing Bush administration's $700 billion financial bailout.

Democrats say they want greater detail and assurances about how the money will be used, after the first half of the package was faulted for an absence of details and for being used to buy stakes in financial lenders and bailing out automakers instead of helping homeowners with mortgage problems.

Connecticut Sen. Joe Lieberman was quoted as saying after the hearing that Obama vowed to veto any attempt to block his own administration's use of the money.

Obama's White House budget director-nominee, Peter Orszag, faced some tough questioning at his Senate confirmation hearing about Obama's absence of details for using the $350 billion bailout and an $800 billion economic stimulus.

"I think in this era of freshness and transparency, that the new administration would want to come forth with detail instead of this mumbo jumbo that is going on," said Florida Democratic Sen. Bill Nelson.

(additional reporting by Jeremy Pelofsky and Caren Bohan; editing by Eric Beech)

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