WASHINGTON (Reuters) - U.S. President Barack Obama will lay out a comprehensive plan in the next few weeks to attack the worst financial crisis since the Great Depression, Timothy Geithner, his nominee to head the U.S. Treasury, said on Wednesday.
At a Senate confirmation hearing at which he apologized for a lapse in paying more than $34,000 in taxes earlier this decade, Geithner sketched out a multi-pronged approach to stabilize housing, strengthen banks and support consumer credit to help the economy break free of a year-long recession.
“What the president is going to do is he’s going to come before the Congress, we hope in the next few weeks, and lay out for the American people a comprehensive plan to help stabilize the core of our financial system,” Geithner told the Senate Finance Committee.
Geithner, who in his current job as president of the New York Federal Reserve Bank has been a key participant in government efforts to prop up financial markets, declined to provide specifics, saying details had yet to be worked out. “We’ve seen the costs, in terms of uncertainty created by tentative signals not followed up by clear actions,” he said.
Geithner’s comments disappointed some investors, who had hoped the administration would move more quickly to help banks unload a mountain of bad debt, and briefly pushed stocks into negative territory before a big late-day rally.
“To expect that Timothy Geithner or any one else in the new team would have a comprehensive plan to revert this crisis in less than 24 hours after the start of the new administration, is a cheap shot,” said Roger Kubarych, chief U.S. economist with Unicredit Markets and Investment Banking in New York. “It is true that the team was formed a couple of months ago and they’ve been tackling the issue but people forget this is a new Congress and any plan needs to be approved by the very same senators that are now grilling Geithner.”
Geithner said the new administration was reviewing a “broad range of proposals,” including the option of setting up a government-run “bad bank” to take toxic assets off banks’ books. The United States took a similar approach to resolve the savings and loan crisis of the late 1980s and early 1990s.
He said the retooling of the government’s $700 billion financial rescue program would tackle the housing crisis and involve “much more substantial direct support to credit markets” so lending can resume to small businesses, car buyers, college students and real estate markets.
Geithner faced sharp questioning over his failure to pay about $34,000 in self-employment taxes when he worked for the International Monetary Fund earlier this decade, and issued a public apology.
“These were careless mistakes. They were avoidable mistakes. But they were unintentional,” Geithner said. “I want to apologize to the committee for putting you in the position of having to spend so much time on these issues.”
Geithner paid back taxes and interest for 2003 and 2004 after an Internal Revenue Service audit. While he made the same tax error in 2001 and 2002, he did not pay back taxes for those years until after Obama expressed interest in nominating him.
“It strains credulity to think that it didn’t immediately occur to you that you had that liability for the whole time that you were at the IMF,” Sen. Jon Kyl of Arizona, the No. 2 Republican in the Senate, told Geithner.
Despite the flap over his taxes, which was seen as particularly problematic since the IRS is part of the Treasury Department, Geithner was expected to win Senate approval. “You’re going to be confirmed,” Republican Sen. Pat Roberts of Kansas predicted.
The committee scheduled a vote on his nomination for 10 a.m. (1500 GMT) on Thursday, which could put Geithner on track to win the needed backing of the full Senate by the end of the week.
BAILOUT PROGRAM REFORM
Geithner told lawmakers, many of whom are upset at how the government’s financial rescue program has been run, that the Obama administration would require banks receiving government money to document increased lending.
“We have to fundamentally reform this program to ensure that there is enough credit available to support recovery,” said Geithner, who played a central role in the government’s decisions to organize an orderly sale of failing investment bank Bear Stearns and to shield insurer American International Group from collapse.
Asked about government support for the auto sector, which has received funds from the program, he said the administration was in the process of assembling restructuring and manufacturing experts to study labor contracts and come up with changes to the program that would strengthen the industry.
Geithner did not make any direct comments on the Treasury’s longstanding policy in support of a strong dollar, but said he would work to ensure that trading partners, particularly China, would pursue flexible currency regimes.
“Our interests as a nation lie in trying to make sure China manages its transition as effectively as possible, with least potential damage and risk to the global economy,” he said. “It is going to require a very substantial sustained engagement.”
Additional reporting by Alister Bull, Mark Felsenthal, Emily Kaiser, Lucia Mutikani and Nancy Waitz; Editing by Leslie Adler
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