Geithner: Financial Markets Require Well-Designed Regulation

On tonight’s broadcast of PBS’ NewsHour with Jim Lehrer, Treasury Secretary Timothy Geithner discusses details of Obama’s new regulatory plan. In the one-on-one, Geithner states that the previous set of regulations were woefully inadequate and defended the decision of the administration to likely tighten the reins on financial markets going forward. In Lehrer’s questioning, he asks: “The commercial banking industry has come out very strongly against it on the grounds that you went after the wrong targets. They were not the problem; it were all these other financial institutions that caused the crisis, and yet you’ve gone hard against them. How do you respond to that?” To which the secretary replies: “I don’t think that’s fair. I think anybody looking at what our economy has been through, the financial system has been through would have to conclude that there were systematic failures in the risk management at not just non-banks, but at banks, and systemic failures in consumer protection, too. I mean, just look at the damage caused by what happened in the mortgage market, in the consumer credit market. ” Geithner continued speaking vaguely of the upcoming regulations, saying that “shock absorbers,” would be necessary, even though sectors of the economy, such as business confidence, are showing some signs of stability and improvement. However, he clarifies that the new rules will not come at the expense of support for central banks or investments in infrastructure. Geithner also said: “getting capital into the financial system, repairing the damage done to the financial system so the financial system can provide the credit necessary for recovery,” is a core aim of the administration.   But even if and when the employment outlook improves, the secretary dampened hopes of a return to the glory days. “It’s not going to go back to where it was between 2004 and 2007,” he tells Lehrer. “That was an unsustainable boom.  Borrowing costs were unsustainably low.  That’s what helped produce this huge boom in credit, huge boom in housing prices, asset prices.  We can’t go back to that.” “In the financial sector, the financial markets require well-designed regulation.  We did not have well-designed regulation,” he adds. “We had the worst financial crisis in generations because of basic failures in the design of regulation. We’ve taken a very limited investment only where necessary.  And you saw two weeks ago — in fact, yesterday, we got $70bn in capital back from some of the nation’s major banks.  We had another $70bn raised by some of the nation’s major banks from the private markets so that we don’t have to be in there.” Check local listings to watch the entire interview, or go to the PBS website.