Kai Ryssdal: We learned this morning — ’cause the Commerce Department told us — that the American economy here in the spring of 2012, goin’ on four years after the financial crisis, still ain’t all we thought it was. Gross domestic product grew at a rate of 2.2 percent in the first quarter. That’s slower than the economy was growing at the end of last year.
It presents a perfect moment for a sit-down with Timothy Geithner, the Secretary of the Treasury. Because with the labor market improving but not great, Europe a problem again, and housing still stuck, it’s hard not to wonder if this might be another spring of faded economic hopes.
So that’s what I asked him.
Timothy Geithner: Well the economy’s definitely getting stronger; it’s healing still. We’re repairing gradually, we’re repairing the damage from the crisis. And the strength is more broad-based than it’s been. You can see it — you know, quite strong energies in the long boom, manufacturing seems pretty strong; high-tech strong.
You’re right, housing is still very weak and we still live in a risky world. Europe’s still a risk, of course, and oil’s still a potential risk. But I think we’re in a stronger position than we’ve been anytime in the last three years, that’s for sure.
Ryssdal: Let me pick up on that point and ask you that — not long after the crisis you said: ‘You know what, I think we saved the economy, but we lost the public. People didn’t really appreciate what had happened.’ Are you still fighting for that appreciation?
Geithner: When you govern, your obligation is to try to do the right thing, make sure you’re focused on doing things that will make things better. And ultimately, that’s what should drive your decisions. If you try to make decisions based on what’s good politics in the near-term, you’ll end up doing the wrong things.
Ryssdal: Granting you all those points, what do you say, though, to people who are still worried about student loan payments, and mortgages and cars and finding a job after I don’t know, 26 months out of work?
Geithner: Well, it’s a very tough economy still. And again, the aftershocks of this crisis are why unemployment is still so high. And why housing is still so tough and why it’s hard for some people to get a loan to buy a house. We’ve got a lot of unfinished business, a lot of work to do still. And to make a greater difference on those remaining challenges, we have to have a willing partner in Republicans in Congress.
Ryssdal: There was a report out the other day from the TARP inspector general which said, which took issue with some of the figures the Treasury Department has come out with as to whether or not taxpayers are going to make money or lose money on the bailout. And without getting into the actual figures, because honest people can disagree, I’d like to use that as a question to ask you about the health of the financial industry, and whether it’s doing now, four years after the crisis, what it ought to do for the economy — facilitating lending, and making things better for individuals. What’s your take?
Geithner: The financial system’s much stronger. You know, we forced the system to go through a pretty brutal, wrenching restructuring. We forced banks to go out and raise hundreds of billions of dollars in capital so they could lend to support a growing recovery. And the lending is now expanding again. That is good, and necessary for the economy. It’s still tough and tight in a bunch of areas. I’ll give you a couple examples.
Geithner: In housing, credit is still tighter than its needs to be, even though the government’s providing most of the mortgages around the country, it’s still too tight. It is true for small businesses still in many parts of the country. And one of the things we were very successful in doing is to put a lot of capital into the financial system so that banks that were under pressure still had a better base on which to lend. And without that capital, you would have had a financial system sucking oxygen from the economy for a much longer period of time, rather than doing what it is doing today — which is to help provide the oxygen the economy needs to recover.
You’re right by the way that the right measure of what we did is not primarily what did we earn, deposit/return, for the taxpayer — although we will. But the right test of what we did is did we help restart economic growth? Did we protect the value of people’s savings? Did we get the financial system in a position again where it could start to lend? And absolutely we’ve done that.
Ryssdal: With respect though, Mr. Secretary, you didn’t answer the question. Right? It’s not about whether the banks recapitalized in any of that. It’s about now, with the biggest banks bigger —
Geithner: Well that’s a different question.
Ryssdal: Hang on a second. Biggest banks, bigger than they were before the crisis, with you saying in the Wall Street Journal we have “financial crisis amnesia.”
Geithner: No we, but some people do.
Ryssdal: OK. Is the financial sector doing what it should do for the economy? Is it better at it?
Geithner: It is better than it has been, and we’re in a much stronger position than we were — much better system than we had before the crisis because we have a much tougher set of rules in place, better authority where we didn’t have it. Now you’re right that there is a inherent problem in any financial system that large institutions might take more risks than they should because of the expectation the government will come in and rescue them from failures. Deeply important question, very good question.
It’s good to look at our system in comparison. It’s not just that our banks have much more capital, but our banks as a share of our economy are much smaller in aggregate that is true for any other major economy. So our challenge is much more modest than many countries face. But we also have in place now much better tools to limit the risk of moral hazard, limit this ‘too big to fail’ risk. So what Congress did in the financial reforms that the president proposed was to make sure that if these firms make mistakes in the future, then we can dismember them — in fact, we’re forced to dismember them, put them out of their misery, without the taxpayer bearing the cost of that rescue in that context.
Ryssdal: Europe, as we’ve talked about, is still a scary, scary place for those who are watching the banks and the debt crisis over there. Are you satisfied that American banks are insulated enough from some kind of crisis over there?
Geithner: I feel relatively comfortable — and the Fed feels relatively comfortable — that we are in a much better position to withstand any pressures from Europe. But again it’s important to acknowledge that Europe is a big part of the global economy and if they were to systematically mismanage their crisis it would have a material impact on growth, like it did in 2010 and 2011.
Ryssdal: Well, yeah exactly.
Geithner: I don’t think that’s necessary, I don’t think it’s likely. I think they have made a lot of progress in the last few months in trying to bring back a measure of calm to their financial markets.
Ryssdal: You saying you are “relatively comfortable” is not incredibly reassuring?
Geithner: Well, I’ll say it more strongly then: The U.S. financial system is in a very strong position to withstand the foreseeable pressures they may face from Europe.
Ryssdal: You’re about to make your 15th, 20th trip to China in the past four years. You spend a lot of time on that issue. I’d be curious as to your state of our economic relationship. It’s been quite a four years in the Chinese economy.
Geithner: Better. Better than it was.
Ryssdal: Is it good?
Geithner: I think it’s better than it was. Exports are growing very rapidly, that’s a good test. Their exchange rate has appreciated against the dollar — about 13 percent in real terms over the last 20 months — that’s pretty good for us, that means the competitive playing field is moving in our direction. There’s better protection for intellectual property rights in China, less piracy against U.S. firms, and China is gradually dismantling a range of the subsidies that their companies enjoy which gives them an unfair advantage. And even though we have much more work to do, I think that the basic direction of reforms in China is fundamentally in our interest.
Ryssdal: It’s widely reported that you want to leave at the end of the first term. Is there anything the president could say if he wins reelection that would get you to stick around? You smile.
Geithner: Yeah. He very graciously asked me to stay, and I agreed I’d stay to the end of the first term, you know as I said, we have a lot of work ahead of us still.
Ryssdal: In 40 years, plus or minus, when you die, your obituary is going to start with: Timothy Geithner, 75th Treasury secretary of the United States who held office during the biggest crisis the American economy’s faced in three generations. Are you comfortable with your response to the crisis being your legacy?
Geithner: Well, there’s always going to be that case. I mean, when the president asked me to do this, it was a time when the country was burning, was on the edge of a second Great Depression, and that was going to be the dominant challenge of our time. And I think the president did the tough, necessary things early with a remarkably effective strategy relative to anything we’ve seen in recent history. Not just in the Great Depression in the United States, but if you look at the management of financial crisis in other countries over the last 70 to 80 years, I think history will judge the response he put in place — alongside with the Fed — is much, much more effective than we’d seen almost anywhere else. And that is important because nothing would have been possible without that.
Ryssdal: What about your legacy though?
Geithner: Well that’s my legacy, too. Just because, again, my job was to help him put out those financial fires and make sure that we didn’t leave the country burning.
Ryssdal: Mr. Secretary, thank you very much for your time.
Geithner: Thank you.
Ryssdal: Timothy Geithner, the Secretary of the Treasury. Check out more on the secretary here, including why he had to change his signature to get on the dollar bill.
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