Interview with Treasury Secretary Timothy Geithner on "Meet the Press"

Interview with Treasury Secretary Timothy Geithner on "Meet the Press"

By Meet the Press - July 25, 2010

MR. GREGORY: Good morning. A summer of anxiety over jobs, the economy, and government borrowing as new polling this week shows President Obama's job approval rating, handling the nation's economy, at a new low. On Friday I sat down with the administration's top economic official, Treasury Secretary Tim Geithner.

Mr. Secretary, welcome back to the program. Thank you for having us down to your office.

SEC'Y TIMOTHY GEITHNER: Good to see you, David.

MR. GREGORY: I want to ask you about some of the broader economic outlooks that we've heard across the, the spectrum this week, an important one from the Fed chairman, Bernanke, who said this week the outlook is "unusually uncertain." And I wonder if, to you, to the president, that means you fear that things are going to get worse before they get better?

SEC'Y GEITHNER: I don't think there's anything unusual about the fact that given the severity of this crisis, this recession, given how bad it was just 18 months ago, that Americans are still living with some caution, some sense of caution about the future. I think that's natural, unavoidable. But, you know, the economy's now been growing for almost a year, little more than a year. Private sector's creating jobs again. The economy is starting to heal again. You're seeing growth. Manufacturing, private investment have recovered. Those are encouraging signs. But we're living still with a lot of challenge still because the scars of this crisis ran so deep. And I think most Americans understand it's going to take some time to heal this.

MR. GREGORY: But "unusually uncertain." There's the prospect of a double-dip recession. There are economists who've said you don't normally see this kind of anemic pace of recovery once a recovery begins.

SEC'Y GEITHNER: I, I think I disagree slightly in the sense that, you know, remember, this was a recession caused by a set of policies that left us with a $1.3 trillion deficit when the president came into office, an economy that was falling off the cliff. Millions of Americans had already lost their jobs. The recession was a year old at that point. And given that we've been living beyond our means as a country, Americans have been borrowing too much, and you had a huge growth in risk taking and leverage in the financial system, what you would expect is a more moderate pace for recovery than is typical. And that's what we're seeing. But again, you are seeing recovery. You're seeing private investment expand again, job growth starting to come back, and that's very encouraging. And if you look at what private forecasters say about the economy, they see an economy that's going to continue to grow, strengthen moderately over the next 18 months or so. And I talked to businesses across the country, and I would say that is the general view, an economy that is gradually getting better.

MR. GREGORY: So just to be precise, you do not believe in a double-dip recession, that it will get worse before it gets better?

SEC'Y GEITHNER: No, I don't. I think the most likely thing is, you see an economy that gradually strengthens over the next year or two, you see job growth start to come back again. Again, investments expanding, manufacturing's getting a little stronger, export's better. Those are very encouraging signs. But we got a long way to go still.

MR. GREGORY: You see this magazine I have, The Week, and, and the headline is "Where are the jobs? The recession is over, but no one is hiring." Why is particularly private sector hiring apparently so slow?

SEC'Y GEITHNER: They're--I think businesses across the country, you know, again, faced with the prospect of an economy falling off the cliff, are still cautious, still very cautious. So they've been trying to get as much productivity out of their employees as possible. They're in a very strong financial conditions, though, and I think that's very promising, because there's a lot of pent-up demand and there's a lot of capacity still for them to step up and start to invest and hire again. But you're seeing it start. You know, we've had six months of private sector job growth. Not as fast as we like, not as fast as we need, but I think you're going to see it, again, gradually start to get better.
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MR. GREGORY: But why are, why are businesses uncertain? Is it what's happened in Europe, in Greece, and in other places? I mean, in other words, businesses are making money, they've got cash, but they don't seem to want to invest it yet.

SEC'Y GEITHNER: They are. Again, most important cause, I think, is the scars caused by the depth of the crisis, what that did to confidence. You're right, though, to mention Europe. You know, when people got very worried about Europe in the spring, it did hurt confidence. You saw equity prices fall around the world, and that, that absolutely had an effect. That in--produced a little more caution. But that, I believe, is a temporary factor. Europe's moved very aggressively. And they're starting to get more confidence back in Europe that they, they have some traction on policies, and they're going to be able to put this behind them.

MR. GREGORY: But you still have both the political and the economic reality of this headline: "Where are the jobs?" And the both political and economic reality is that most Americans, based on a variety of polling, do not believe the administration's claim that the stimulus had made things better rather than left things largely unchanged. And the criticism is, primarily from the left, that the stimulus was never big enough to really match up to the severity of the crisis. So why not stimulate more? Why not spend more to do something to create more jobs?

SEC'Y GEITHNER: There's a lot of stimulus still in the pipeline. You saw Congress move this week to expand unemployment benefits. The Senate is about to consider a very powerful package of, of tax cuts for small businesses, help small businesses get access to credit. That's very important. And we think there's some more things Congress can do to, again, to help reinforce this recovery. But we're in a transition, David, from the extraordinary actions the government had to take to break the back of this financial crisis to a recovery led by private demand. That transition is well under way. It's going to continue, it's going to strengthen.

MR. GREGORY: So you're not prepared to say that more public works government spending is necessary?

SEC'Y GEITHNER: Well, I--we've got a lot of challenges less--left as a country still ahead of us. We have very high rates of unemployment, very high levels of long-term unemployed. We want to make sure we're strengthening the competitiveness of American companies across industries. And we've got some long-term fiscal problems that are going to be a challenge for us as a country. And we're going to work to fix those problems we inherited, but the best way to do that is to make sure we're growing, private investment starts to come back, private firms start to hire again. The government can help, but we need to make this transition now to a recovery led by private investment, private...

MR. GREGORY: And that's an important statement.


MR. GREGORY: You're saying that, indeed, government should take its foot off the accelerator of stimulus.

SEC'Y GEITHNER: You know, we have already moved very aggressively to unwind and walk back the emergency measures we had to put in place in the financial sector. Those were very effective, bringing down the cost of borrowing, we brought a lot of private capital in. So that was the right thing to do then. We've dialed those back very quickly. Right now we still think there's a good case for the government acting with targeted measures to help small businesses and help the unemployed, help states keep teachers in the classroom. Those are sensible, good steps. But we have to make this transition to a recovery led by private companies.

MR. GREGORY: You talked about extending benefits to the unemployed. When the president did that back in November of last year, he trumpeted the fact that it was paid for, that it wouldn't add to the deficit. And yet the complaint from Republicans this time is no such promise here. This will add to the deficit. Why was it important then to make sure it was paid for, but not now?
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SEC'Y GEITHNER: I think this is a responsible way to do it. You know, my job, David, is to help make sure we can borrow to finance the obligations that Congress gives us. And I think it's a prudent, responsible way, given the scale of the emergency, the scale of the damage still facing America, that we finance these additional support for the unemployed as well as the support for small business. We think there's a good case for doing it now. We want to do it in an overall fiscally responsible way. And, as you know, the president has proposed a series of measures that will cut our deficits in half over the next several years. That's important, too, for future growth. We're going to need to make sure we get that balance right.

MR. GREGORY: But again, it was important to be paid for then, but not now?

SEC'Y GEITHNER: David, we can afford to do it this way. I'm completely confident we can. And if you look, again, at what we're paying to borrow now, we've got very low interest rates as a country, in part because people around the world and Americans have a lot of confidence in our capacity as a country to make sure we manage through these challenges.

MR. GREGORY: Indeed, that's the argument that is cited by those who say that government should spend more, because the cost of borrowing right now--there's all this debate about stimulus vs. the debt. A lot of people saying government spending's out of control. But you just made the point, it doesn't cost a lot to carry the debt right now. Why not spend more to create jobs when they don't appear to be materializing from the private sector?

SEC'Y GEITHNER: It's a difficult balance. Again, we are proposing to make sure we're extending tax cuts that go to 95 percent of Americans. We extend a bunch of tax incentives to businesses to help encourage hiring, investment. We think those are sensible, affordable steps. We can, we can afford to do that now. But we have to make some choices, too, and we have to make sure we can continue to earn confidence around the world that we're going to have the will as a country to bring these large inherited deficits down over time to a much more manageable level.

MR. GREGORY: Let me talk about the achievement of financial reform legislation that you've worked so hard on. The, the pay czar, Ken Feinberg, has been working on compensation, just issued a new report saying that, at the height of the crisis, you had some of the biggest banks paying bonuses that were not warranted. Do you have any way to get any of that money back?

SEC'Y GEITHNER: You know, he spoke to that earlier. Congress did not give him the authority to do that. But they did give him authority he used very effectively to change how Wall Street was paying its executives, and he did an enormously important job in trying to make sure that we have in place ways to make sure these guys don't go back in the future--don't go in the future back to paying executives to take risks that could imperil the stability of the economy. He did a great job, limited authority, but he used that authority very well.

MR. GREGORY: The, the issue is, are we fighting the last war in financial reform? To what extent do you look at this regime of new regulation and say, "Well, there's still a wait-and-see aspect to this in terms of whether it could really do the job the next time, because we don't know what the next time's going to look like."

SEC'Y GEITHNER: We don't. And that, that's the basic strategy that is reflected in this bill. The best way to make sure we're protecting a financial system from future crisis--we won't know the source, we won't be able to anticipate pre-empt all those crisis--is to make sure the system runs with much thicker shock absorbers, much larger cushions, financial resources against loss, much stronger capital buffers so that they can withstand the kind of shock losses you'd face in a recession like this. That's the most effective thing you can do, and this reform bill gives the government authority it did not have to make sure the system runs with these much more conservative constraints on risk taking.

MR. GREGORY: As someone's who concerned about the overall growth of the economy, the role of education, innovation, manufacturing, does it trouble you that 25 percent of our economy is the financial sector, which doesn't actually make anything besides money?

SEC'Y GEITHNER: I don't know what--how large the system's going to be in the future. You can't really tell. But what we're determined to do, and what the reforms will do is to make sure this system goes back to its core purpose of taking the savings of Americans and from investors around the world and allocating those to people with an idea, not just the largest companies in the country, but to small businesses with an idea and a plan for growing. That's what systems have to do well. Our system, at its best, was the model for the world in doing that, and these reforms will make sure we preserve that basic strength.
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MR. GREGORY: A couple of questions about housing and taxes. The housing market is still in a lot of trouble. It was propped up with mortgage modification, with the, the tax benefits of buying new home. That's now gone. Home sales have gone back down. Modifications have not worked, there still--has not met the goal of avoiding four million foreclosures. I'm curious to know whether the president and you are committed to three critical areas--the tax credit for mortgage interest, the credit provided by Fannie Mae and Freddie Mac, and the housing goals, particularly for low-income Americas--Americans. Are you still committed to those three pillars?

SEC'Y GEITHNER: I'll say the two things that guide us going forward now. One is we want to make sure that we do what is necessary to make sure Americans have the ability to borrow, to finance the purchase of a house. And we bring stability to house prices, we help repair the huge damage done by the housing market. And as you--you still say, it's still, you know, in a lot of distress. But we've brought a measure of stability to house prices, interest rates have come down dramatically, millions of Americans have been able to refinance, take advantage of lower rates, which is much more money in their pockets. And we put in place a very carefully designed mortgage-modification program to help people who have a chance to stay in their house take advantage of that chance. Now, we're going to make sure we continue to do what's necessary to, again, repair the damage of this housing crisis. But we have to reform the system. We have to bring to Fannie and Freddie, to the GSEs, and to the broader housing finance market a better set of policies to make sure we can deliver affordable finance for housing without leaving the economy vulnerable to this kind of crisis.

MR. GREGORY: But the housing goals, because that's a big part of what Fannie and Freddie were doing, of course. Again, they, they guarantee most of the debt, the mortgage debt that's out there in the country.


MR. GREGORY: And the government has now taken them over and they were private heretofore. But it is a goal of getting people into homes, is that still the goal? Because that's part of the problem, right? You had too many people in homes that couldn't afford to be there?

SEC'Y GEITHNER: David, I--we're going to take a careful look at a set of reforms that are going to be good for the country going forward and don't leave us vulnerable to this kind of crisis in the future. I personally believe that there's going to be a good case for the government preserving some type of guarantee to make sure that people have the ability to borrow to finance a house even in a very damaging recession. I think there's going to be a good case for that.

MR. GREGORY: So Fannie and Freddie should not be dismantled?

SEC'Y GEITHNER: No, that's, that's different.

MR. GREGORY: That's different.

SEC'Y GEITHNER: I think we're not going to preserve Fannie and Freddie in anything like their current form. We're going to have to bring fundamental change to that market. But I think there's going to be a good case for taking a look at a preserving or putting in place a carefully designed guarantee so, again, homeowners have the ability to borrow to finance a home even in a very difficult recession. But we're also going to have to take a look at the broad set of policies we put in place to help encourage home ownership and particularly help low-income Americans get access to affordable housing. We're going to take a very broad look at, at, at how to best to do that. We're going to begin that process very quickly, consult broadly. And I think that there's going to be very broad support among Republicans and Democrats for a set of sensible reforms to fix this system.

MR. GREGORY: Let me go through as quickly as I can some of the big tax issues. The Bush tax cuts set to expire, the administration's plan is let them expire, in other, in other words, raise taxes on wealthy Americans above 250,000, but don't let them expire, keep them going for those $250,000 or less. Even Democrats, like the chairman of the budget Committee, says bad idea to raise taxes on wealthy Americans until you've got a recovery on sounder footing. Any wiggle room on that? Any prospect of change?
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SEC'Y GEITHNER: I, I, I don't, I don't think it's quite a fair description of Senator Conrad's views. But I won't speak to them. But I'll say what the president believes, and I believe this, is the right thing for the country, the fair thing, the responsible thing for the country now is to make sure we leave in place and preserve tax cuts that go to more than 95 percent of working Americans and complement those with a set of incentives for businesses to expand and hire. To make that possible, and to do that responsibly, I think it is fair and good policy to allow those tax cuts that only go to 2 to 3 percent of the highest earners in the country to expire as scheduled. The country can withstand that. The economy can withstand that. I think it's good policy.

MR. GREGORY: Would you like to see the capital gains tax stay at 20 percent?


MR. GREGORY: And so you'll push for that?

SEC'Y GEITHNER: Yeah. And, and we don't want to see the rate of dividends exceed that either because, again, we want to make sure we have policies in place overall across the economy that's going to make sure we're encouraging investment, encouraging growth as this economy recovers.

MR. GREGORY: If deficits are unsustainable, can you give an example yet of a painful choice that the president's prepared to make to bring our fiscal house in order?

SEC'Y GEITHNER: Oh, absolutely. I mean, again, he's proposed to freeze discretionary spending, to keep the overall size of the government at a very modest level as a share of our economy. If you look again at what the president's proposing, he keeps the overall size of government at a very modest level comparable to--lower than what was in the Bush administration, comparable to what President Reagan presided over. That's very important. That is a difficult thing to do when we face so many challenges as a country. But he's also proposing, as you, as you said, David, to allow these tax cuts for the highest earners to expire on schedule. He's proposed to reinstate a bunch of disciplines that helped produce the large surpluses of the Clinton era. Now--and those, those policies will bring our deficits down by more than half over the next several years.

MR. GREGORY: Final question. The president talked about the fact that, like a lot of Americans who are saving for their kids educations, his 529, or college savings plan for his daughters has gone down in value. A lot of people think about...

SEC'Y GEITHNER: Well, it's come up dramatically...

MR. GREGORY: Come up--all right, but it's still...

MR. GREGORY: ...from his first few months in office.
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MR. GREGORY: OK. Yeah, right. But this is a serious point because a lot of people think about this and about investing in the market for the future, as you've passed financial regulation. What is a fair expectation for Americans to have out of the capital markets, if they see that as a place for savings, when for so many years we've heard, "Hey, you'll get 10 to 15 percent returns over the long-term." Is that what Americans can really expect?

SEC'Y GEITHNER: I think what they can expect from these reforms is much more accessible, much more simple, much clearer disclosure about the terms in which they can borrow to finance education for their children, borrow to finance a home, borrow to finance a car, take a credit card. Much more clear, transparent, simple disclosure than they had over the past several decades, and much better information about the risks you take in investing. That's a sensible thing for the government to do. Now, of course, you need people to be able to make responsible decisions. We can't make those decisions for those individuals. They've got to take that responsibility themselves.

MR. GREGORY: But hasn't the world fundamentally changed in the markets that you simply cannot expect to get the kind of return on investment that you've enjoyed and so many Americans have enjoyed for so many years?

SEC'Y GEITHNER: I think it's hard to know. What you want people doing is making better decisions, more careful decisions about how much of their income they spend, how much of their income they save, what they use those savings for, how much they borrow. And I think the trauma caused by this crisis is going to be profound and long-lasting, and you're already seeing it induce, I think, an ultimately healthy and necessary change in behavior because people are already saving more of their income, and I think that's going to be a good thing for the country.

MR. GREGORY: Secretary Geithner, thank you.

SEC'Y GEITHNER: Nice to see you, David.


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