Geithner: Stimulus is working and on right path
Despite persistently high unemployment, Treasury Secretary Timothy F. Geithner said Friday that the Obama administration’s economic stimulus plan is on the “expected path.”
“There’s been substantial improvements in arresting what was the worst recession globally we’ve seen in generations,” he told lawmakers.
Geithner’s remarks came amid waning public support for President Obama’s economic policies. Republican critics say the rising unemployment rate is proof that the $787-billion stimulus has not helped reverse effects of the recession.
About 2 million jobs have been lost since Congress passed Obama’s stimulus package in February. Unemployment stands at 9.5%, the highest rate in 26 years. Some Obama allies have been calling for Congress to pass a second stimulus package.
Geithner said the rate of decline in the economy has slowed, consumer confidence has improved, the financial system is healing, and concern about a meltdown has receded. “Those are critically important signs of initial progress,” he said.
Geithner said that in a recession unemployment continues to rise even as an economy begins to improve. Without the stimulus, he said, more jobs would be lost.
Rep. Michael Rogers (R-Ala.) challenged Geithner’s assertion that business and consumer confidence was improving. “People are scared to death,” he said.
Geithner countered that the recession was a long time in the making and that recovery will take time as well.
Geithner’s comments, before a joint hearing of the House financial services and agriculture committees, came in the midst of his call for greater government control over the generally unregulated derivatives market, which he said contributed to the crisis.
“Establishing a comprehensive framework of oversight is crucial,” Geithner said.
The effort to add government restrictions to these financial instruments has support within the Democratic-controlled Congress.
Financial Services Committee Chairman Barney Frank (D-Mass.) is planning derivatives provisions that that are even more strict than those the administration is proposing.
Derivatives are financial instruments whose value derives from something else, such as a mortgage-backed security or a commodity such as oil. The allure of the over-the-counter derivative, as opposed to those swapped on exchanges, is that they can be individually negotiated and tailored to meet the specific needs of the buyer.
Under the administration’s plan, so-called standardized derivative contracts would be traded on regulated exchanges or trading platforms. Dealers would be regulated, and participants would have to meet capital requirements to prevent over-leveraging. Banks and other parties would still be allowed to enter into customized contracts outside regulated exchanges, under the Obama plan, but the transactions would have to meet more reporting requirements.
Frank, speaking to MSNBC after the hearing, said he would further limit the ability of businesses to enter into individualized derivative contracts.
“We will specifically be requiring that in almost every case derivatives go on an exchange . . . or a clearinghouse, that there not be these individualized deals,” he said. “And if people are going to make individualized deals, they’re going to have to have a lot more capital behind it.”
Frank also said he would call for a ban on so-called naked credit default swaps, a type of derivative where buyers have no risk exposure.
Some Democrats have called for fewer customized derivatives contracts and a few have urged that some derivatives, such as credit default swaps, be banned.
The administration’s proposal, part of a broader overhaul package, has opposition from much of the financial industry, which says it would raise costs and squash innovation.