WASHINGTON (Reuters) - The following are highlights of an interview with Treasury Secretary Timothy Geithner at the Reuters Washington Summit.
“We are now at the point where we can begin to wind down the programs that really defined TARP in its initial stages. So we believe that we’ve had enough progress in helping bring stability to the financial system, bring down the cost of credit, make sure the capital markets are opening up, businesses can borrow again, raise capital, that we can wind down the principal programs that were designed to make sure that large banks had access to capital (and) were stable. So what this means is the programs that were called initially — the Capital Purchase Program — that were set to expire at the end of November, I believe, we’re going to let those expire...”
“It’s very important that we preserve as insurance, really, the capacity to make sure that we’re fixing this financial system.”
“We need to make sure that in sort of an abundance of caution that we have the capacity, as insurance, to help this process of repair to continue. But we think that again, those initial programs that sort have defined TARP in the eyes of everybody have been successful enough that we can wind them down and make sure that what we continue on an ongoing basis are more targeted programs directed at what are the principal areas where there’s still weakness in access to credit. Small business is one example, housing is another example.”
ON STRIKING THE BALANCE BETWEEN FISCAL STIMULUS, RESTRAINT
“For there to be a recovery that’s self-sustaining over time, led by private investment by private business, people have to be confident that we’ll bring those deficits down over time and that’s a difficult balance. Right now the overwhelming imperative we face is still to make sure that we reinforce this nascent recovery.”
“That’s going to be a difficult balance. As the president said, we’re looking at a range of ideas that might help us strengthen recovery and therefore get us quicker to the point where the economy’s creating jobs and unemployment starts to come down....”
“It’s like the central economic choice of our time, and it’s the basic balance that’s so difficult for governments to wrestle with in any downturn.”
“The only strategy that makes sense is to make it clear that you will do what’s necessary to reestablish conditions for growth... but for that to work over time, people need to understand and be confident that you will have the will and ability to get back to living within your means when you have growth established.”
“My general view of what’s in the interest of the United States is to recognize that a strong dollar is important to the United States, and that it is very important that we as a country keep focusing on the things that are going to improve our fundamentals, long-term fundamentals, to make sure we’re doing things to improve confidence in our capacity to run sound, strong macroeconomic policies.
“This is not just monetary, not just about confidence in the independence of the Fed, but in our capacity to bring our fiscal position down to a sustainable position over time.
“We understand that imperative — deeply understand that imperative — and are going to continue to focus on trying to make sure we are getting these fundamentals better.
“In general, that’s a sensible strategy for any country. If you get the fundamentals right, you’re focused on improving basic confidence in fundamentals, then you are more likely in a position where you have broader stability in the international financial system and international monetary system.”
“I think we can be quite encouraged by this initial sign you see of recovery. But it’s been one quarter. And I think there is a quite good prospect that this builds over time, that it broadens. And, as the government support inevitably is wound down, that it’s replaced by greater confidence and more spending by companies and businesses. And again if you look at the strength of the recovery you’ve seen globally, and you’ve seen again the basic improvements in confidence to date, I think we have a reasonable prospect of that happening....”
“We have a financial system that is still going to have to work through a period of excessive leverage. That typically creates the conditions for slower-than-normal recoveries. That doesn’t mean we’re consigned to the prospect of a slow and weak recovery. It just means that the constraints you are going to face going forward are by definition going to be greater than they would if you are coming out of a normal downturn, not produced by a huge credit crisis, huge collapse in housing, etcetera.”
“We want to make sure that the recovery is strong enough. For it to be strong enough, to bring unemployment down, we’ve got to make sure people can borrow. So we want to make sure that there’s enough capital in the financial system. But I think we’re getting at the point where it’s quite likely you’re going to see significant further repayments....”
“I think again, you are at a place now where banks would like to be able to begin to repay. And I think it would be good for the system if you saw public capital replaced by private capital. Private capital is just more valuable, makes more sense. Nobody wants the government to be in there a day longer than is necessary. We don’t want to be in that position.”
ON EXTENDING FIRST-TIME HOMEBUYER TAX CREDIT
“In Congress a lot of people are looking at that carefully now. That’s one of the things out there that’s had some impact on confidence early on. It’s one of the reasons why people might want to consider extending it, but we’re going to have to look at that in the context of a range of other difficult choices. We haven’t made that judgment.”