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Geithner Won't Say If Bailout Program Will Be Extended

Updated at 13:43 p.m.

NOTE: Treasury Secretary Tim Geithner's appearance before the House Financial Services committee scheduled to start at 1 p.m. today, has been postponed.

The Senate Banking committee just let Treasury Secretary Tim Geithner go, and now he heads over to the House Financial Services committee for a 1 p.m. hearing before chairman Rep. Barney Frank (D-Mass.)

The administration wants to talk about reforming financial regulations, but the Senate isn't quite done talking about the Treasury's financial rescue program, at a hearing of the Senate Banking committee underway right now, hearing testimony from Treasury Secretary Tim Geithner.

Sen. Kay Bailey Hutchison (R-Texas) voiced the common sentiment that Congress was "misled" when it gave Treasury $700 billion to buy troubled assets from banks, The Post's Binya Appelbaum reports.

Treasury has since used the money to invest in banks, insurance companies and automakers, among other things.

Hutchison wants to know whether Treasury will extend the bailout program for another 10 months at the end of the year, something the original legislation allows the administration to do.

Geithner said no decision has been made, and proceeded to defend the bailout as subject to multiple layers of oversight. He also said the administration has adhered to spending principles it outlined at the beginning of the year.

Sen. Corker Hammers Larry Summers

11:45 a.m.: Sen. Bob Corker (R-Tenn.) is stirring things up.

He said imagines the president's financial regulatory overhaul plan released yesterday was written by, "A lot of fellows sitting around the White House drinking Diet Cokes."

Then he took a poke at Larry Summers, the president's chief economic adviser, asking whether the president should provide the Senate with a signed letter stating that no one involved in creating such a large expansion of the Fed's powers would later be appointed the Fed's chairman. Summers is widely reported to covet the position currently held by Ben Bernanke.

Geithner was tight-lipped and terse in his reply.

"No, I don't think that would be appropriate," he said. "Nor would it be necessary."

Geithner Asked: Aren't You Creating More Fannies and Freddies?

11:37 a.m.: The ghosts of Fannie and Freddie are hanging heavy over this hearing of the Senate Banking committee currently underway on the Hill, where Treasury Secretary Tim Geithner is testifying, The Post's Binya Appelbaum reports.

A few senators have asked how the White House managed to produce a reform proposal purportedly aimed at the roots of the financial crisis without addressing the future of Fannie Mae and Freddie Mac. The "white paper" simply includes a placeholder promising answers with the president's 2011 budget.

Geithner said Congress already has created a temporary answer for Fannie and Freddie, although of course this plan in theory contains final answers.

Now Sen. Mel Martinez (R-Fla.) asked if the administration plan would create more Fannies and Freddies by designating some firms as so large and critical that they deserve special federal oversight.

Experts say that creating a safety net beneath large firms basically allows them to borrow money more cheaply, because investors see less risk. The firms get to keep all the profit because the government is there to absorb losses.

"Aren't we doing the same thing now with insurance and in other areas?" Martinez asked.

Geithner said the White House plan must be taken as a whole: It requires large firms to hold more capital, limiting their profits and growth, and it creates a new mechanism to dismantle them, so that they are no longer "too big to fail."

Geithner Asked: Why Wasn't Entire Regulatory System Bulldozed?

11:31 a.m.: Treasury Secretary Tim Geithner is at halftime for his first of two Hill hearings today. The Treasury secretary heads over to the House this afternoon.

Sen. Jon Tester (D-Mont.) has an interesting question. The president said yesterday that he made a choice not to bulldoze the regulatory system and put a better system in its place, as was done during the Great Depression.

Given the extent of the present difficulties -- which some like to call the Great Recession -- Tester wants to know, "Why not?"

Geithner said the idea has "much appeal" but the administration judged that more sweeping changes were not necessary.

That's not the real answer, however. As The Post's David Cho and Zachary Goldfarb report today, the administration backed away from most of its boldest ideas in the face of massive political pressure.

Geithner Hammered On Housing Bubble

11:18 a.m.: The members of the Senate Banking committee are asking Treasury Secretary Tim Geithner about the Fed's existing powers at a hearing underway now.

Why did the Fed allow the housing bubble to inflate, and why doesn't the administration's plan address that issue, asks Sen. Jim Bunning (R-Ky.).

Furthermore, Bunning asks, given the Fed's failure to anticipate or prevent this crisis, "What makes you think that the Fed will do better this time around?"

Other senators want to know why the Fed should have the power to make a loan to any company during a financial emergency, risking public money without any public permission.

Geithner says the administration plans to subject this power to the approval of the Treasury Secretary.

Fun fact from Bunning: the Fed waited 14 years to use its power to regulate mortgage lending.

Geithner says again that the plan would take that power from the Fed.

Utah Objects To Elimination of Particular Financial Institution

10:48 a.m.: One of the administration's more obscure financial reform proposals would eliminate a category of financial institutions called ILCs, or industrial loan corporations.

Unlike banks, ILCs can be owned by non-financial companies. Examples include General Electric, Neiman Marcus and Harley Davidson. They also are not subject to the Federal Reserve's oversight, a loophole the administration would like to close.

Who cares?

Sen. Robert Bennett (R.-Utah).

Why?

Well, most of the large ILCs are based in Utah, because of friendly state laws.

Bennett is in a thundering mood this morning. "You are killing a major source of credit" he says, adding that ILCs have not contributed to the financial crisis. "We're going to take an area that worked and abolish it."

Geithner responds that all lenders should be subject to similar legislation.

Bennett is not amused. He assures Geithner that the Senate will be reviewing this idea "very, very carefully."

Schumer Offers Lukewarm Endorsement of Obama's Plan to Give Fed More Power

10:28 a.m.:
The Fed has found a friend.

Sen. Charles Schumer (D-N.Y.) has just offered a lukewarm endorsement of the administration's plan for the Federal Reserve.

"I tend to agree that the Fed is the best answer, though there are no great answers," Schumer says.

The leading alternative so far is the idea of creating a council of regulators to oversee systemic risk. That idea is favored by many of the regulators who would sit on the council, including Sheila Bair, chairman of the Federal Deposit Insurance Corp. and Mary Schapiro, head of the Securities and Exchange Commission.

Schumer is not on their side, however. He calls the idea "a formula for disaster."

Senators Voice Skepticism to Giving Federal Reserve More Power

10:16 a.m.: The other major topic for debate: Whether the Federal Reserve should have new powers to police broad risks to the financial system, and to regulate the largest firms and most important markets.

Geithner, the former head of the New York Fed, says this idea "is not a dramatic increase in the Fed's powers" and is actually "quite modest."

He also argues there is no good alternative. "You cannot convene a committee to put out a fire."

The senators are not buying it.

Shelby wants to know why such a power should be vested in the Federal Reserve -- an agency that is not directly responsible to Congress.

Dodd points out that the Fed isn't very good at some of the jobs it has already, such as protecting consumers.

When Geithner suggests that removing these powers would eliminate a distraction, Dodd responds wryly, "I only wish the consumer legislation had been more of a distraction for the Fed."

This is funny by Senate standards, and there is laughter in the audience.

Shelby Outlines Republicans' Opposition to Obama's Financial Regulatory Reform Plan

10:07 a.m.: Sen. Richard Shelby (R.-Ala.) just offered a sketch of the opposition's emerging counterarguments:

1. Slow down.
There is a need to carefully consider such large changes to the financial regulatory system. "We have spent very little time discussing the concept of systemic risk, determining how best to regulate it, or even establishing that it can be regulated at all.," Shelby said.

2. The Fed? Really?
Republicans note that the Federal Reserve's primary focus should be on regulating economic growth through monetary policy, and that the agency is at risk of being overwhelmed.

3. First do no harm.
Republicans are putting an emphasis on maintaining the preeminence of the American financial industry. "We must do everything we can to not only ensure the safety and soundness of our financial system, but also its competitive standing in the world," Shelby said.

Democrats Launch Case for New Consumer Protection Agency Overseeing Financial Products

9:55 a.m.: Democrats are launching their case this morning for a new agency to protect borrowers and other consumers of financial products. Sen. Christopher Dodd (D-Conn.) spoke at length about the need for such an agency before the Senate Banking committee hears testimony from Treasury Secretary Timothy Geithner.

Dodd said a consumer protection agency is a necessary response to "the spectacular failure of consumer protection" in recent years. He said that such an agency "would have stopped this crisis before it started." Dodd also brandished a copy of The Washington Post to highlight an article about the industry's opposition to the proposed agency. "What planet are you living on?" he asked, addressing those companies.

You can read Geithner's opening statement by clicking here.

-- Frank Ahrens
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By Sara Goo  |  June 18, 2009; 12:11 PM ET
Categories:  The Ticker  | Tags: Federal Reserve, Jim Bunning, Tim Geithner  
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Next: Reactions to Obama's Financial Overhaul Vary

Comments

blog blog blog blog

Looik ma, I'm blogging!

Posted by: Cossackathon | June 18, 2009 11:31 AM | Report abuse

before the meltdown these folks were all worth $100's of millions. They are engaged in having the government make good on what they believe was legally, uhhh, fanagled. That is what history will tell us. They couch it in nonsense about saving our pitiful 401k's.

Posted by: angriestdogintheworld | June 18, 2009 1:40 PM | Report abuse

The Federal Reserve, usually just referred to as the "Fed", which is not a Federal or Government agency at all but a privately owned and controlled bank by International Banks and Banker Families such as the Rothschild's, who can't or won't account for $9 trillion in Fed off-balance sheet transactions over the past 8 months and they want to give them more power and control? Clearly the patients are running the Asylum.

Posted by: corax57 | June 18, 2009 2:18 PM | Report abuse

BARACK HUSSEIN OBAMA'S APPEASEMENT FOREIGN POLICIES WEAKEN THE U.S.; HE SIDED WITH IRANIAN BRUTAL REGIME!!!

Coward liar Barack HUSSEIN Obama "Apologist in chief", how can he keep his nonsense promise during his campaign, that is, negotiating with U.S. enemies such as North Korea and Iran, which have never respected any treaty with U.S., especially when North Korea just launched many missile and nuclear tests and planned to fire missile toward Hawaii, not mentioning illegally arrested and sentenced two American journalists Laura Ling and Eunu Lee to twelve years of labor, while Iranian president Mahmoud Ahmadinejad, an extremist who called for Israel to be wiped off the map and denied the holocaust, was just re-elected by fraud. Is Obama going to bow to Kim Jong Il and Ahmadinejas as he did to King Abdulla of Saudi Arabia to gain his peace deals? Is he willing to convert to Islam, his Kenyan father and Indonesian step father's religion, to meet Osama Bin Laden's requirement that in order to end the Iraq war, U.S. troop withdrawal is not enough, Americans must reject their democratic system and embrace Islam? Just recently, Obama said that he would support Iran's right to peaceful nuclear energy with rigorous inspections, giving a green light to Teheran's ambituous uranium enrichment program, which can be used for its discreet nuclear bomb development program as well, without suffering sanctions and economic isolation as it currently endures. Does Obama want Iran to become another North Korea using its nuclear power to terrorize the U.S and its allies? Worst still, Obama refused to show support for pro-democracy protesters and denounce the brutal regime for the deaths of seven demontrators, fearing to be seen as interfering in Iran's internal affairs so that he could not pursue a nuclear deal with Ayatollah Ali Khamenei, the country's supreme leader. In fact, Obama sided with the regime, citing that there was not a bit of difference between the two candidates, a moderate Mir Hossein Mousavi and hardcore extremist Ahmadinejad. Is he going to turn a blind eye to another Tianamen Square massacre committed by the Iranian Revolutionary Guard? As for a Palestinian state demanded by Obama, it will undoubtedly soon become a TERRORIST state under control of terrorist militant group Hamas, which is the most powerful and popular force with its goal to destroy Israel and which won a majority seats in the current Palestinian National Authority in 2006 election and ousted Fatah militant group of Palestinian President Mahmud Abbas of Gaza in 2007. Last but not least, Obama ordered to stop waterboarding tactic used by CIA, even it worked well on terrorist suspects like Khalid Shaikh Mohammed, the self-describer planner of 9-11 attacks who provided CIA with valuable information, preventing more 9-11 attacks and saving thousands of American lives.

Posted by: TIMNGUYEN1 | June 18, 2009 3:18 PM | Report abuse

--provided CIA with valuable information, preventing more 9-11 attacks and saving thousands of American lives.

Yea right. 9-11 was just another false flag operation to further the aims of the global elite. The very same people who own and control the Federal Reserve.

Posted by: corax57 | June 18, 2009 7:34 PM | Report abuse

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