Why Geithner’s Treasury leadership proved divisive
|By MARTIN CRUTSINGER, AP Economics Writer|
Not since the Great Depression had an administration inherited so many grave financial threats at once. To many, Geithner deserves credit for helping steady the banking system and helping restore investor confidence. Yet his toughest critics say Geithner's policies consistently favored big banks over ordinary struggling Americans.
When Geithner became Treasury secretary in
Geithner, whose last day in office is Friday, was an administration point man on all these issues. Here's a look at some of the crises the Treasury confronted on his watch:
_ BANK BAILOUTS
In the bleakest days of the financial crisis in 2008, the Bush administration got
By the time Geithner took office, billions had been handed out to the biggest banks. Many were considered at risk of failing because of their huge investments in subprime mortgages that were souring.
Opponents charged that TARP, a taxpayer-funded bailout, let banks evade responsibility for reckless gambles. Geithner countered that the banking system had to be stabilized. The bailout was deemed necessary to get credit, the essential lubricant for an economy, flowing again.
In the end, the banking system was bolstered with the help of TARP and a separate Geithner initiative requiring the largest banks to undergo "stress tests." The tests calmed investors by showing that the banks could withstand an even worse downturn.
Critics argue that under Geithner, the government failed to ensure that banks would use their TARP money to lend more to businesses and homeowners.
Geithner's approach won't prevent future crises, opponents further argue. They say big banks still feel free to make risky bets because of an implicit guarantee: that if their gambles fail, the government will save them, and the banks' executives won't be held accountable.
"Secretary Geithner protected the interest of the largest financial institutions, and we will pay a very heavy price for that," said
Many private economists are less critical. They say Geithner achieved the fundamental goal of stabilizing the U.S. financial system without damaging the economy.
"The effort was a success and vitally necessary for ending the Great Recession and starting a recovery," said
_ AIG BAILOUT
Geithner and the administration endured intense criticism for giving bailout aid outside the banking system to
The insurance giant represented everything the public detested about the government bailouts: Its rescue was the costliest at
Geithner, who led the Federal Reserve Bank of
Geithner and Federal Reserve Chairman
Supporters note that the government ended up profiting on its investment. AIG has repaid all the bailout money, and the government made
_ AUTO BAILOUTS
Government bailouts of
But unlike with the bank and AIG bailouts, the government is expected to lose money on the auto bailouts _ up to
The auto industry rescue was begun under the Bush administration but expanded under Obama. Administration officials have said the effort saved more than 1 million jobs and came as the economy was enduring a severe crisis. Geithner was involved in crafting the auto bailout and selling it to
Private economists generally view the auto bailout favorably. "There are certainly those who argue that it could have been done in a less expensive manner, but the auto bailouts did save U.S. jobs," said
_ HOUSING CRISIS
The Bush administration took control of mortgage giants
The government has given
The future of Fannie and Freddie remains hazy. Geithner's Treasury proposed several options for their future but didn't push any.
Under Geithner, Treasury compiled a mixed record of helping homeowners at risk. Of
The administration's initial program to ease mortgage payments for the most troubled homeowners became a source of derision. Homeowners called it a bureaucratic mess. Treasury officials countered that the administration had inherited a foreclosure crisis for which it had to devise solutions on the fly.
Critics say Geithner should have taken a harder line in forcing mortgage servicers to modify home loans. They also say he should have pushed hard to let struggling homeowners reduce their loan principal.
But Geithner's supporters say he had to deal with congressional Republicans who felt the government shouldn't be helping people escape their debts.
_ FINANCIAL REGULATION
It authorized the government to break up companies considered a risk to the financial system. It created an agency to safeguard consumers. And it aimed to tighten scrutiny of complex financial instruments that had previously escaped regulatory oversight and had fueled the crisis.
Geithner said the bill would reduce the risk of another crisis. But critics saw the legislation as flawed. Republicans said it created obstacles to the smooth operation of financial markets. And liberals said Geithner didn't go far enough to try to curb the worst abuses. They complained that he caved to pressure from banks to weaken the reforms.
The argument will likely continue long after Geithner's exit. Since taking control of the House in the 2010 election, Republicans have sought to dismantle Dodd-Frank.
Democrats are pushing for studies of how much benefit large banks enjoy from being deemed "too big to fail." Many Democrats want to require struggling financial firms to be dismantled rather than having taxpayers save them.
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