02-11-2009, 02:47 PM
David Kotok, chief investment officer at investment adviser Cumberland Advisors in Vineland, N.J. posted some questions (http://money.cnn.com/2009/01/20/news/newsmakers/geithner.questions.fortune/) that he wished would be asked during Secretary Geithner's confirmation hearings. Were these questions ever asked?
02-11-2009, 03:35 PM
There appear to be at least a couple of similar questions asked. I'm skimming through a Lexis-Nexis transcript, so I can't link to it, but here are similar questions. Apologies to the hamsters for the length of the post, but since I cannot link to a transcript, this was my only alternative.
SEN. BAUCUS: Thank you. The basic question I think that most Americans have today -- and I mentioned it earlier -- is the lack of confidence in today's financial system. It's been there quite a while, unfortunately. And you have alluded to some actions that might be taken to restore that confidence in your prepared statement.
Could you just today now directly tell the American people what you're going to do to help restore that confidence as quickly as it possibly can be achieved? What are you going to do?
MR. GEITHNER: Senator, you're absolutely right that we've seen a just catastrophic loss of trust and confidence, and when trust and confidence --
SEN. BAUCUS: You might pull the microphone a little closer to you.
MR. GEITHNER: Thank you. And when you lose trust and confidence, it's very hard to restore it, and it takes a lot of care and attention to bring it back.
And 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 to the American people a comprehensive plan to help stabilize the core of our financial system so that the banks that are so critical to our economy are able to provide the credit necessary to get recovery going again.
He's going to lay out a comprehensive plan for addressing the housing crisis in this country, which has been so central to the recession and its basic causes, and he's going to lay out a broad set of programs for trying to directly address the constraints that are now making it harder for small businesses, for students, for people who want to buy a car, for municipalities across the country to get access to credit to make those things -- and those three things are going to be the central of our -- central part of the president's program.
As he does that, he is going to make sure -- we will make sure that we have in place strong, carefully designed conditions to protect the taxpayer, conditions that improve the possibility that private capital will come in and replace the government's role as quickly as possible, and with a set of measures to provide much greater transparency about how the money is being spent and the results the investments of the taxpayer are producing.
We're going to have to move -- we're going to have to work much more closely together, Senator, with the Treasury and the Fed and the FDIC working together rather than separately. We're going to have -- as you said in your opening statement, move -- work much more closely with other countries and with the international financial institutions, because this is a global crisis; it's going to require a global response. And our actions here will be more effective if they're taken in close coordination with the actions of the other major financial centers.
And we're going to have to work much more closely with the Congress. I think the world needs to see Congress and the executive branch working together to solve this problem. We can't be in the position, we can't -- will not be effective in restoring confidence unless we see a clear commitment by the country as a whole to work -- to take the actions necessary to solve those problems. And we will consult carefully with you and work as hard as we can to address the concerns raised by your -- by you and your colleagues.
SEN. JOHN KERRY (D-MA): Thank you, Mr. Chairman. . . . . And in fact, I think you can advantage the American banking system very significantly by moving aggressively in the global marketplace to be the first to do this and finance it through the treasuries, et cetera, and ultimately winding -- I think being less expensive to the American taxpayer as a result. So I'd ask you to speak to that.
Did you go to the board of governors, the chairman of the Federal Reserve, to the Treasury secretary?
What would you have done, 20/20 hindsight, and how would you have done it differently? Why didn't you aggressively pursue it here? I don't know, maybe you did with the Treasury secretaries, or to the Congress.
So I'd be interested in knowing that because I look at the issue of the credit derivatives, we look at what happened in Lehman's. There was a different explanation from the Treasury secretary and from the chairman of the Federal Reserve and a spokesman on your behalf. I don't know whether or not that's been verified. But the fact that Lehman's was allowed to collapse because it was already absorbed by investors and then -- or the fact that you didn't have the federal regulatory authority to do anything about it.
And finally, you know, the inability of, you know, purchasing toxic assets, which was the original intent and purpose of the 350 that we provided last fall and it didn't -- failed to happen.
So when I look at that entire picture, it concerns me, because that is what's creating the confidence, I think, about where we stand today, the confidence in our system and the confidence to get it right. And actually, I think we did work with speed and force last September -- much to the objection of the American public, frankly.
So I would like to know from you exactly what you did in that market; why on Lehman's; and third, on the toxic assets. Thank you.
MR. GEITHNER: Thank you, Senator. Let me start on credit derivatives. When I became president of the New York Fed, this critically important market, with tens of trillions of notional exposure, was a market where trades were confirmed, if they were confirmed, by fax, by pencil and paper, by phone. A very rudimentary, primitive execution framework existed. Firms did not know what their positions were and their exposures were.
And what I did was to get the major institutions in -- who were responsible for about 95 percent of this market in the room at the New York Fed, with their primary supervisors from around the world -- first effort on this scale, I believe, ever. And we got those institutions to commit to clear, concrete commitments to substantially strengthen that infrastructure and put it on a stronger foundation going forward.
And the changes made over that period of time, starting in 2004- 2005, were very, very effective in trying to make sure that the infrastructure in this critical market was strong enough -- stronger than it was before, so that we could withstand a shock of this magnitude.
Now, as important as that, I worked with the SEC and again with the lead supervisors of the major global firms around the world -- from Switzerland, from Germany, from France, from the United Kingdom and from Japan -- to make sure that -- we were trying to encourage very substantial improvements in risk management so these firms had a better sense of the risks they were exposed to in credit derivatives and a broad range of other complex financial products.
And those efforts, I believe, had a lot of traction. They made the system stronger. They could have had more traction, of course.
And if more would have been done earlier and there had been more responsiveness to those efforts, then this crisis would have been less severe. But those things were very important, and I believe they're very effective. And I think that market today is on a path to the point where it's going to be -- it's going to have the basic strength and resilience you would expect from a market that important.
MR. GEITHNER: Complicated questions to address this quickly, but let me speak to the question you raised about Lehman, Mr. Chairman, and then perhaps I could respond in writing to the other questions.
Lehman's failure was an enormously complicated -- enormously consequential event. It didn't cause this financial crisis, but it absolutely made things worse. Lehman failed fundamentally because it had -- it faced a need for capital on a scale the market was unwilling to provide, the market was unwilling to provide in part because of the severity of the crisis at that point. Over the course of the summer, things were getting dramatically worse and everybody was pulling back from risk on a dramatic scale.
But neither the Department of the Treasury, the executive branch nor the Federal Reserve had been given the authority by the Congress that would -- may have made it possible for the government to put in capital on a scale necessary to avoid default. We could not force any institution to come in and buy Lehman Brothers or guarantee their obligations. And no one was willing, without the government taking a very, very substantial capital position, and we did not have the authority at that point to do that.
That was a critical and tragic set of constraints. And this country should have never been in the position where we entered a crisis of this severity without an adequate set of tools to address failure by an institution that large and that consequential and that systemic.
We did work very hard to try to limit the damage, but anything that complicated and systemic was going to cause very, very substantial damage. It was clear at the time, it's absolutely clear in retrospect, and one --
SEN. BAUCUS: If you could shorten up a little more, please.
MR. GEITHER: -- reason why it's so important.
SENATOR JIM BUNNING (R-KY): Thank you, Mr. Chairman.
Welcome, Mr. Geithner, to the committee. Of the many positions in the federal government about to be filled, the Treasury secretary is among the most critical today obviously. We are confronting a severe financial panic. And one false move by the secretary of the Treasury could result in years of stagnation and high unemployment.
Even before the disclosure of the nominee's tax problems, I had serious reservations about this nomination. Mr. Geithner has been involved in just about every flawed bailout action of the previous administration.
He was the front-line regulator, in New York, when all the innovations that recently have brought our markets to their knees became widespread. He went along with the flawed monetary policy decisions of Alan Greenspan and Ben Bernanke. He failed to cite China for manipulation of its currency. And he stretched the law, beyond recognition, to bail out Bear Stearns.
All those actions or failures to act raise questions about the nominee's judgment. But the failure to pay taxes specifically provided to him, by the IMF, is the most troubling because it reflects a degree of negligence towards the law he will be charged to enforcing.
Mr. Geithner does not provide a satisfactory explanation for the problem. He's certainly not one -- it's certainly not one significant for a high-ranking public official, who the American people demand and deserve to hold to a higher standard.
The committee has known about these matters since December 5th. But it was not until about one week ago that the information was shared with the members of the committee.
Soon afterward, the chairman sought to hold a rushed confirmation, to which I and others objected. This hearing is still rushed. And my staff has only limited time to access the relevant information. Now the chairman wants to mark up the nomination tomorrow.
As far as I know, the committee has never interviewed the IRS personnel involved in the tax case. And none of the witnesses has been made available to the staff or committee members.
That is unacceptable, in light of evidence that the IMF clearly explained his payroll tax obligations, as acknowledged by the nominee himself. And Mr. Geithner's failure to pay all the Social Security and Medicare taxes he owed until he was to be nominated is hard to explain to my constituents, who pay these taxes on a regular basis.
I could spend a lot more time explaining my concerns about this nomination, but I would like to get to them later in questions that I will ask the nominee. Thank you.(Note that some of the issues were raised, but no question was asked, and Geithner was not asked to comment.)
SEN. BLANCHE LINCOLN (D-AR): Thank you, Mr. Chairman. I appreciate you having us all here today to move quickly. . . . As the head of the New York Fed, you've certainly been intricately involved in the creation and the implementation of TARP. And I know my colleague, Senator Wyden, asked this question probably in one form or fashion, but really reflecting on had you been the Treasury secretary during that process, what would you have done differently?
And I guess more importantly, would the program stay on the same track so-to-speak? Or in the coming weeks, and what we see ahead of us, are you going to take it in a new direction? And hopefully, you'll share with me some of those new directions.
MR. GEITHNER: Senator, the president of the United States is committed to fundamental reform of this program. And he wants to make sure that we effectively and credibly address all the concerns raised by you and many others about the way this has been done so far.
And as I said earlier, the critical test of this program is whether we do enough soon enough to make banks strong enough that they can lend and help make sure that credit is flowing to parts of the economy where it can have the most impact, including to small businesses.
And we're going to have to do that again with carefully designed conditions to protect the taxpayer, and with a set of much more detailed set of provisions for transparency and accountability.
The president's director of the National Economic Council sent two letters to the Congress last week with some recommendations for how we could do that. We're going to take a careful look at the recommendations of the Congressional Oversight Committee and all the other people who've looked at this stuff. And we will look carefully at those and we will adopt the ones we think are most effective in that area.
But we understand and share the concerns with the amount of impact we've seen from this so far. And we'll do our best to try to meet those concerns with federal reforms that will make it more effective.SEN. GRASSLEY: Okay. Given that Bear Stearns and AIG bailouts were conducted outside of TARP, do you think that it makes sense to broaden the authority of the special inspector general for the TARP to oversee these funds as well? And if you don't agree with me, why not?
MR. GEITHNER: Senator, that sounds like a reasonable suggestion but I want to think about it more carefully before I respond. I do think it's important to point out that in The Emergency Economic Stabilization Act, Congress also passed a set of important new conditions for oversight and transparency and reporting on the entire set of programs financed by The Fed. And if there are ways we can improve that I'd be happy to work with you and your staff on how best to do that.
SEN. GRASSLEY: Well thank you.
You said in your statement today that you intend to reform the TARP to, quote, "ensure that there's enough credit available to support recovery," end of quote, an additional quote with, quote, "tough conditions to protect the taxpayers", end of quote, and to "ensure transparency." End of quote. How do you intend to reform the program and how do you intend to increase transparency?
Do you agree with Secretary Paulson that the focus of the program must return to troubled assets rather than bailing out banks?
MR. GEITHNER: Senator, I believe, as I said earlier today, that we're going to have to have a comprehensive program using all the authority that Congress provided us to try to make sure banks are in a stronger position so they can lend and so that we get the credit markets functioning again and get risk premiums and interest rates down in those basic markets. At the same time we do that, we're going to try to put in place a more effective comprehensive housing strategy because that's been at the center of this crisis. And there's a lot of ideas up in the Congress and in the regulatory community on how best to do that.
As we do that, we are going to lay out what we think are the best conditions most effectively designed to protect the taxpayer and we're going to take the best of the proposals out there, from the inspector generals, from the GAO, from the congressional oversight body, to try to improve the level of transparency and reporting provided. Larry Summers laid out a number of specific suggestions in the last two letters the last two weeks about how best to do that. We're open to any other suggestion on how to do that. And if I'm confirmed, a critical priority of the secretary of the Treasury will be to try to be responsive to those concerns you and so many others have expressed about how the program has been implemented.
But, again, the critical test for us is going to be how do we make sure there's more strength and confidence in the core of the financial system and would get these credit markets functioning again so that lending is available on a scale and a condition that'll make it more likely we get out of this sooner?There's a lot more discussion of related issues during the hearing, but I tried to pick out the parts that seemed the most related.
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