Geithner: Markets won’t solve crisis

Treasury Secretary Timothy Geithner said government action, not the markets, will solve the banking crisis in offering a fierce defense on Sunday of the Obama administration’s efforts to fix the financial sector.

{mosads}The new administration has already made a slew of moves in its two months in office — from offering public incentives to get private firms to buy up toxic assets to calling for new federal authority to seize institutions that aren’t banks. But the Treasury secretary suggested that more will need to be done.

“The markets will not solve it,” he said in an appearance on ABC’s “This Week.”

“The great risk for us is we do too little, not too much.”

Geithner wouldn’t rule out another request by the administration to Congress for even more money for the bailout for troubled banks. Obama’s budget set aside $250 billion for more money for the program, known officially as the Troubled Assets Recovery Program (TARP). The item is not included in House and Senate budget blueprints, but that wouldn’t prevent Obama from asking for it.

“The important thing is that we are going to work with the Congress to make sure that we have the resources we need to do things right,” Geithner said.

Separately, House Budget Committee Chairman John Spratt (D-S.C.) said future bailout money is left out of congressional budget plans because it’s unclear whether it will be needed.

“Well, we don’t know it and we’re essentially saying, come make your case, the burden of persuasion is upon the president,” he said Sunday on CNN’s “State of the Union.”

Spratt added that nobody likes funding the bailouts and that any future bailout proposals would need to be more detailed than previous ones.

“So this is our way of exercising a little leverage over it,” he said.

Geithner, who came to Treasury from the New York Federal Reserve, said he understood the public anger at Wall Street. Both Democratic and Republican lawmakers have already signaled opposition to more bailouts, refusing to set aside more money for TARP in their proposed budgets for next year.

“This is not easy for people,” Geithner said. “There is a deep amount of public anger and frustration that the American economy is suffering so much damage from people who took on too much risk.”

But Geithner said that the administration would make the case to Congress for more TARP money in the future if it thought that it was needed. He dismissed calls by GOP senators to allow banks to fail rather than bail them out, saying that government moves are necessary to prevent even more trouble for the economy.

“These things don’t burn themselves out without catastrophic damage,” Geithner said.

Geithner also pushed back against critics from the left, including economist Paul Krugman, who is featured on the cover of this week’s edition of “Newsweek.” Krugman has slammed the administration’s plans to try to create a market for bad bank assets.

Geithner said that strong banks are necessary so that other firms will be able to obtain the financing they need. 

“It’s very important that people recognize to get out of this, we need banks to take a chance on businesses,” he said.

Markets have rallied over the last two few weeks, adding a touch of optimism about the economic outlook.

Geithner said that he has seen “encouraging signs” about the economy, including larger than expected increases in home sales and mortgage refinancing. And he noted that most economists are predicting that the economy will reach a “durable bottom” and then begin to grow in the second half of 2009.

He added on NBC’s “Meet the Press” that people, as a result of the recession, will be “living within their means more, which is helpful.”

“We want to end this pattern of having booms and busts,” he said.

Geithner said that after the crisis is over, “people are going to care less about what they make, more about what they do. What they achieve is what they make. And that will help make this country stronger.”

This story was updated at 11:47 a.m.