Obama scrambles on Geithner, bailout concerns

WASHINGTON Wed Jan 14, 2009 11:07am EST

Treasury Secretary nominee Timothy Geithner meets with Senate Majority leader Harry Reid on Capitol Hill, December 9, 2008. REUTERS/Jim Young

Treasury Secretary nominee Timothy Geithner meets with Senate Majority leader Harry Reid on Capitol Hill, December 9, 2008.

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 whose work papers lapsed while she was employed by his family, 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.

'A FEW LITTLE HICCUPS'

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," Baucus said.

Baucus, chairman of the Senate Finance Committee, sought consent from panel members to hold a hearing on Geithner's nomination on Friday, the panel said.

His nomination needs approval by the full Senate.

Problems related to household employees 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.

But a Democratic official said that Geithner's part-time housekeeper was never an illegal alien. Her work authorization papers were up-to-date when Geithner hired her but they later expired because she forgot to update them.

Geithner was unaware that three months before she stopped working for his family to have a baby that her documents expired, another official said.

"Nevertheless, she continued to reside legally in the United States, she was married to a U.S. citizen, and she was granted a green card a few months later," the official said.

WORKED FOR IMF

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

Transition aides 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 $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, an independent, 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 Mohammad Zargham)

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