ROBERT SIEGEL, host:
Now, Treasury Secretary Timothy Geithner.
Welcome to the program once again.
Secretary TIMOTHY GEITHNER (Department of Treasury): Thank you, Robert.
SIEGEL: As we've heard, the banks are saying that this is about politics, not economics, that banks who've paid back their TARP or never took any TARP money are going to be taxed along with the other banks.
What do you say to that?
Sec. GEITHNER: We're doing the - what is fair and what is just, what is economically sensible and what we have a legal obligation to do, which is to make sure that we hold the American people harmless from the cost of the financial crisis and that we collect back from the financial industry - that benefited from the financial rescue - the ultimate costs of what it took to solve this crisis. That's a sensible, fair thing to do.
SIEGEL: What do you say then to a bank which says, we never took any TARP money, so we haven't benefited from this?
Sec. GEITHNER: Well, you know, this is designed to apply to the largest financial institutions in the country that benefited most directly from the rescue. And that to us seemed the sensible way to do it. You know, we're doing it in a way that effectively puts a tax on leverage, so that it'll help disincent some of the risky practices that caused the crisis. And we've designed it carefully to reduce the risk that it has any impact on lending. And we think that's the best way to do it.
SIEGEL: There's one reading of this which is that it's an effort - this tax is an effort to blunt the impression that the administration has been too close to Wall Street, too soft on Wall Street. Is that part of what's happening?
Sec. GEITHNER: No, it's not. I mean, again, the law that was passed to authorize the financial rescue put an obligation on the president to propose a way to recoup the cost of the crisis, and that's what we're doing.
SIEGEL: Now, $90 billion, say over 10 years, is a lot of money. But this year three big banks are expected to spend almost 50 billion in bonuses. So that makes it sound perhaps like no more than a nuisance tax for these banks.
Sec. GEITHNER: No, this is a very substantial fee. But, again, the size is determined by what the conservative estimate of total losses might be. That's what decides the ultimate costs. So we're, you know, Robert, we're just trying to meet that basic obligation in a way that is fair, makes sense, is good economic policy, and is basically just.
SIEGEL: What about bonuses, though? If this fee is imposed and come next January we see bank bonuses just as big as this year, would that suggest to you that this has not done the job, or could that happen and could the fee still be working?
Sec. GEITHNER: This fee is not designed to address that problem. And, as you know, our financial system has got a lot of problems in the basic design of the rules. And we are going to have to fix that. And that's why it's so important that we pass financial reform that puts in place much stronger constraints on banks taking risks, that protects the consumers and investors from the kind of behavior that cause so much damage and, you know, reduces the risk we ever again face a crisis like this...
SIEGEL: But aren't you at all concerned about, at least the appearances of bonuses that seem to show that the banks that received help from the federal government don't get it?
Sec. GEITHNER: Look, I think what's happening on the bonus front is deeply troubling. And I think it is causing enormous damage to basic trust and confidence in the people running our financial institutions. And I think it is very important, as part of financial reform creating a more stable system, is that these institutions are forced to change those practices. And we're going to work very hard to do that.
But our basic obligations, again, is to make sure we pass strong reforms, put cops back on the street enforcing those rules so that we never again put the country in the position of facing something this damaging.
SIEGEL: You're satisfied that the bill that's moving through the Senate...
Secretary GEITHNER: I think we're actually...
SIEGEL: ...qualifies as a strong reform?
Sec. GEITHNER: I think that we - what passed, I think, is a very strong set of reforms, and I know Chairman Dodd is working very hard to build on that progress. And I think we have a very good chance at getting strong reforms in place and we're going to fight very hard to make that happen.
You know, again, this is a just war. It's a necessary war for the American people.
SIEGEL: Now, there's another matter I want to ask you about that goes back to your time as president of the Federal Reserve Bank of New York, and that's been in the news quite a bit lately. It's about AIG. AIG received a huge bailout from the Federal Reserve. Financial institutions that it owed money to were getting a hundred cents on the dollar instead of having to settle for much less than that, as if AIG were in bankruptcy.
So two questions. First: Was the Fed standing up AIG so as to spare Goldman Sachs (unintelligible) Deutsche Bank the consequences of very risky decisions they've made? And second: Did the New York Fed and did you have anything to do with telling AIG to keep details of those transactions secret?
Sec. GEITHNER: No on the first. If the government had not stepped in to act to prevent the failure of AIG, this crisis would have been much more damaging. And I believe we did it in a way that ultimately will cost the government much less money than the alternatives. And I think we made the basic test of doing it in a way that was going to provide the best basic return for the American people.
In fact, on the specific transaction the Fed was involved in, it's almost certain the Fed will actually make money in that transaction.
SIEGEL: Then why wasn't the word to AIG: Go ahead and be as public about it as you would in any other filing?
Sec. GEITHNER: No, I understand that. So in your second question, I had no involvement, because I had already been appointed or at least my appointment to this job had been announced. I had no involvement in that basic decision.
SIEGEL: You're saying you had recused yourself from dealing with AIG at that point?
Sec. GEITHNER: I was recused from dealing with AIG and had no involvement in the decision about what to disclose when. But the Fed has disclosed all the information about what counterparties get, I think appropriately. And, of course, I will work very closely with the Congress to make sure they have the information necessary, that people can look and evaluate the judgments we made, with the benefit of hindsight, but these are consequences (unintelligible).
But I think overall, it's important for people to recognize that what we did was necessary even though it was offensive. I think we did it in a way that was least cost to the taxpayer.
SIEGEL: But with the benefit of hindsight, would you look back at AIG, why not say that AIG, a huge insurance company, was as imprudent with risk as General Motors was bad at making and selling cars? So if they...
Secretary GEITHNER: More imprudent.
SIEGEL: ...owed you money - more imprudent - if they owed you money: Sorry, guys, but you'll have to settle for something less than a hundred cents on the dollar. We'll keep (unintelligible).
Sec. GEITHNER: Oh, Robert, if that had been possible, of course we'd have done that, but the basic - you know, this is the tragic failure of our system. The basic problem is for a financial institution like AIG, bankruptcy was untenable.
SIEGEL: Treasury Secretary Timothy Geithner, thanks a lot for talking with us once again.
Sec. GEITHNER: Thank you, Robert.