Exclusive - Timothy Geithner Extended Interview Pt. 3

  • Aired:  05/21/14
  •  | Views: 97,901

Timothy Geithner argues that the stimulus package was the best possible solution to the housing crisis given the conditions that the Obama administration faced. (7:17)

>> LET'S DO YOUR, LET'S DO ANATURAL EXPERIMENT.

WHAT WAS THE PLAUSIBLE, REMEMBERTHIS WAS A DEMOCRATIC

PRESIDENT ELECTEDWITH A SUBSTANTIAL MANDATE FROM

THE LEFT. FROM THE LEFT.

>> Jon: SOCIALLY. RIGHT. RIGHT.

>> WORRIED ABOUT HOW TO PROTECTTHE COUNTRY IN THAT CONTEXT.

>> Jon: CORRECT.

>> SO, AND THINK WHAT HE FACEDAT THAT POINT.

THE ECONOMY AT THAT POINT WASSTILL FALLING OFF THE CLIFF.

IT WAS TERRIBLE.

>> Jon: RIGHT.

>> AND ASK YOURSELF THE QUESTIONWHAT DID HE DO AT THAT TIME?

WHAT DID HE DO AT THAT TIME,PRESIDENT OBAMA? HE WENT AND

GOT, AGAIN, A LARGER SET OFTHINGS PUT DIRECTLY INTO

MAIN STREET, LARGER THAN WHATPRESIDENT ROOSEVELT DID IN THE

GREAT DEPRESSION. AND THENWHAT HE DID, AND THEY WEREN'T

LARGE ENOUGH, AND THEY WERE VERYDISAPPOINTED --

>> Jon: BUT, IT WAS AGENERALIZED STIMULUS, IT WAS

TAX CUTS AND IT WAS A CASHFOR CLUNKERS PROGRAM,

BASICALLY IT WAS SOMEONE WASLOSING THEIR HOUSE, AND THEY

CAME IN AND SAID WHY DON'TYOU SELL US YOUR CAR?

(LAUGHTER)

>> Jon: DO YOU UNDERSTAND WHATI'M SAYING?

IT WAS ILL DIRECTED.

>> NO, IT WAS NOT ILL-DIRECTED.

>> Jon: LET ME REPHRASE IT,THEN.

WHAT WOULD HAVE BEEN THEPROBLEM, THE BIG TOXIC ASSET IS

MORTGAGES.

WHAT WOULD HAVE BEEN THE PROBLEMWITH REDUCING PRINCIPLE FOR

HOMEOWNERS?

>> THERE'S NO PROBLEM WITH DOINGIT. AND IT WAS A GOOD IDEA.

>>Jon: SO WHY DIDN'T WE?

>> AND IT WAS A GOOD IDEA.>> Jon: WHY DIDN'T WE.

>> AND WE TRIED TO DO ITACTUALLY ON A VERY SIGNIFICANT

SCALE BUT THE PRESIDENT WAS NOTGIVEN, DID NOT HAVE THE

AUTHORITY TO FORCE IT. COULDN'TFORCE FANNIE AND FREDDIE TO DO

IT, COULDN'T, LOOK YOU HAVE TOUNDERSTAND WHAT OUR LIFE IS LIKE

IN THSE JOBS. WE KNOW SOMETHINGABOUT THESE THINGS.

WE HAVE LOTS OF IDEAS. NOWTHEY'RE NOT ALL GOOD IDEAS.

BUT, WE GET LOTS OF IDEAS, LOTSOF ADVICE.

>> Jon: SURE.

>> WE LOOKED AT EVERYTHING.WE KNEW AND UNDERSTOOD THE CASE

FOR DOING A MORE SUBSTANTIALHOUSING PROGRAM PRINCIPLE

REDUCTION THEN WE RUN INTO THECRUSHING REALITY

WHICH IS WE HAVE A CONGRESS THATHAS TO LEGISLATE, UNWILLING TO

DO ANYTHING REALLY AT THATPOINT, AND THE PRESIDENT IS

INVESTED WITH NO KIND OFAUTHORITY ON HIS OWN TO COMPEL

IN THAT CONTEXT. SO WHAT WE DIDIS, WE HAD THIS SET OF TOOLS

THAT WERE SORT OF LIKE THISLARGE.

>> Jon: BUT YOU HAD $200 BILLIONTHAT YOU WERE ALLOWED TO

USE BEFORE CONGRESS STEPPED INAND REDUCED IT TO THE LIMIT THEY

REDUCED IT TO, YOU HAD ACCESSTO$200 BILLION.

>> BUT YOU COULDN'T USE THAT TOFORCE OR COMPEL OR PROVIDE

PRINCIPLE REDUCTION ON A LARGESCALE THROUGH FANNIE AND

FREDDIE. WE HAD NO ABILITY TO DOIT. AND AGAIN, IT WAS NOT

BECAUSE WE DIDN'T THINK IT WOULDBE GOOD AND JUST AND POWERFUL

AND RIGHT -->> Jon: WHY COULDN'T YOU?

>> BECAUSE, AGAIN, IT'S NOT LIKENATIONAL SECURITY. YOU KNOW,

PEOPLE THINK THEIR COUNTRY ANDTHEIR GOVERNMENT IS ALL

POWERFUL IN A CRISIS -->> Jon: BUT YOU DID PUT

CONDITIONS ON FANNY AND FREDDIETO TAKE THAT MONEY.

YOU KICKED OUT, THEIRSHAREHOLDERS LOST EVERYTHING AND

YOU KICKED OUT ALL THEIR PEOPLE.

>> WE DID. AND CONGRESS, WHENCONGRESS GAVE HANK PAULSON

AND PRESIDENT BUSH THATAUTHORITY, THEY GAVE IT WITH

ONE CONDITION WHICH IS THEY GAVETHE PRESIDENT AND

THE SECRETARY OF TREASURY NOAUTHORITY TO DIRECT THE RELIEF.

THEY WANTED TO KEEP ITCOMPLETELY INDEPENDENT OF THAT.

>> Jon: SO, WHAT YOU'RESUGGESTION IS THE ONLY

OPPORTUNITY WE HAD WAS TOREINVIGORATE THE

BANKS, RELIQUIDATE, RECAPITALIZETHE BANKS

AND WE HAD NO ABILITY TOREFINANCE OR REDUCE PRINCIPAL ON

ALL THOSE HOMEOWNERS?

>> NO, NO, WHAT WE DID, LET MEJUST GO BACK.

OUR PROGRAMS DIRECTLY ANDINDIRECTLY HELPED 4 MILLION

PEOPLE KEEP THEIR HOMES, ITHELPED MILLIONS OF

PEOPLE REFINANCE.IT WAS NOT ENOUGH.

IT WAS TOO SMALL RELATIVE TO THESIZE OF THE PROBLEM.

>> Jon: RIGHT.

>> BUT THE SCALE OF THE THINGSWE DID IN THE FINANCIAL SYSTEM

AND IN THE STIMULUS WAS DIRECTEDAT THE CENTRAL OBJECTIVE OF

MAKING IT MORE LIKELY PEOPLEWOULD HAVE A JOB AND AN INCOME

>> Jon: STIMULATING THEGENERAL ECONOMY.

>> YES, THAT'S THE MOST POWERFULTHING. AGAIN, IF YOU THINK ABOUTTHIS --

>> Jon: BUT IT'S NOT THE MOSTPOWERFUL THING TO SOMEONE LOSING

THEIR HOME.>> IT IS.

>> Jon: THE IDEA THAT THEGENERAL ECONOMY IS GROWING AT

A 3% RATE VERSUS A 2.3% RATEIS LOVELY TO THE LARGER

ISSUE, BUT TO THE10 MILLION PEOPLE LOSING

THEIR HOMES, IT'S MEANINGLESS.

>> NO, I DON'T AGREE WITH THAT.AND, THAT'S NOT FAIR.

THE MOST IMPORTANT THING YOU CANDO FOR AN ECONOMY FACING THIS IS

TO MAXIMIZE THE CHANCE THAT THATPERSON AT RISK OF LOSING THEIR

JOB KEEPS THEIR JOB, TO MAXIMIZETHE CHANCE THEY GET ASKED TO

WORK MORE HOURS, TO MAXIMIZE THECHANCE IF THEY LOST THEIR JOBS

THEY GET BACK TO WORK.

>> Jon: OKAY.

>> THAT WAS THE BIGGEST CAUSE OFTHE HOUSING CRISIS AND IT WAS

THE MOST IMPORTANT THINGYOU COULD DO. AND, I THINK,

THE MOST EFFECTIVE WAY TO DOIT WAS CLOSE TO THE MIX OF THE

THINGS WE DID. IF YOU ASKYOURSELF IN YOUR NATURAL

EXPERIMENT, LET'SDO YOUR NATURAL EXPERIMENT --

>> Jon: ALL RIGHT. I LIKESCIENCE.

>> WE GIVE NOTHING TO THEBANKS -- OK, LET'S SAY WE DO THE

BANK STUFF. BUT INSTEAD OF DOING--

>> Jon: THERE YOU GO. OR YOU DO,

YOU DO A LOT OF THE BANK STUFFBUT KEEP 200 BILLION OF THAT --

>> OK, LET'S DO IT YOUR WAY.

>> Jon: WE'VE GOT 1.2 TRILLIONIN TOXIC --

>> YOU HAVE $200 BILLION, YOU

WANT TO FIGURE OUT HOW TO SPENDIT.

>> Jon: YES THAT'S RIGHT.

>> LET'S THINK ABOUT THAT.

IF YOU WERE THE PRESIDENTSITTING THERE IN THAT DARK

MOMENT WITH NO GOOD CHOICES ANDA CONGRESS MOSTLY AGAINST HIM

AND YOU'RE ASKING YOURSELF WHATWOULD YOU DO WITH $200 BILLION?

>> Jon: AM I HAL HOLBROOK, ISTHIS A ONE MAN SHOW?

>> NO, I CAN TELL YOU. YOU WOULDUSE THAT MONEY.

FIRST YOU WOULD SAY GIVE IT TOSTATES AND LOCAL GOVERNMENTS SO

MORE TEACHERS STAY IN THECLASSROOM, YOU'D DO IT

FOR INFRASTRUCTUREPROJECTS MORE LIKELY TO

CREATE EMPLOYMENT, YOU DO IT FORTHINGS THAT MAXIMIZE A

CHANCE, THE AUTOMOBILE INDUSTRYDOESN'T FALL OFF THE CLIFF.

THOSE SET OF THINGS. THAT'SWHAT YOU WOULD DO THAT FIRST.

AND THEN OF COURSE, YOU WOULDTRY AND DO WHAT WE DID, WHICH

WAS TO MAKE SURE PEOPLECOULD REFINANCE AND PEOPLE COULD

STAY IN THEIR HOMES. YOU'D DOTHOSE TOO. NOT AS A SUBSTITUTE.

THE FIRST AND MOST POWERFULCLAIM TO AVOID MORE DAMAGE IN

HOUSING WAS TO DO THINGS THATWOULD MAXIMIZE THE CHANCE THAT

YOU WOULDN'T HAVE MORE PEOPLELOSING THEIR JOBS AND MORE

PEOPLE GET BACK TO MORE -->> Jon: I UNDERSTAND THAT.

BUT IN THE MATHEMATICALANALYSIS, IT IS VERY CLEAR THAT

THE OVERWHELMING MAJORITY OF ITWENT BACK TO BANKS.

>> I KNOW YOU SAID IT NOW FOURTIMES.

YOU HAD YOUR LIST OF THINGS.

BUT SAYING IT DOES NOT MAKE ITTRUE.

>> Jon: SO YOU'RE SAYING THATTHE MAJORITY OF OUR DIRECT

RELIEF DID NOT GO -->> IF YOU WANT TO DO YOUR MATH,

DO IT THIS WAY.

$1.4 TRILLION DIRECTLY FOR THEAMERICAN PEOPLE.

TAX CUTS, UNEMPLOYMENTINSURANCE, FOOD STAMPS, MONEY

FOR STATES, ROADS AND BRIDGES,LARGER THAN ROOSEVELT IN THE

GREAT DEPRESSION.

HUNDREDS OF BILLIONS OF DOLLARSTO MAKE SURE HOUSING MARKET

DIDN'T DO WORSE.

HOUSE PRICES FALL.

NOT FOR FANNIE AND FREDDIE ANDSHAREHOLDERS --

>> Jon: SO YOU'RE LOOKING ATIT LIKE OK, WE DID 1.4 TRILLION

FOR THE PERSON PEOPLE, AND THEBANKS WE DID, WHAT, WOULD

IT COME OUT TO? LIKE$900 BILLION.

>> NO, THE BEST THING FOR THEBANKS IS WHAT CAME BACK TO

THE TAXPAYERS.

THE BEST WAY TO DO IT.

>> Jon: NO, IT'S NOT THE BESTWAY TO DO IT.

>> YES IT IS.

(LAUGHTER)

>> Jon: I SUBTRACT FROM YOUR1.4 BILLION. IF YOU WANT TO

ADD IN WHAT THEY PAID BACK, THENI'M GONNA SUBTRACT

FROM THE $1.4 TRILLION THEDAMAGE THIS

CRISIS DID TO THE COUNTRY.

(ARGUING)(APPLAUSE)

IF YOU'RE GOING TO FACTOR INWHAT THEY PAID BACK, I'M TALKING

ABOUT MONEY OUT NOT NECESSARILYMONEY IN.

>> I GET YOU. LET'S DO IT THISWAY.

LET'S AGREE THE MATH THING ISSORT OF DUMB, OKAY?

LET'S DO IT THAT WAY. IT WASYOUR MATH. I'M JUST SAYING YOUR

MATH WAS SLIGHTLY OFF, SO LET'SPUT ASIDE THE MATH.

>> Jon: HERE'S THE NICE THING,I FEEL LIKE I AM STILL OPEN TO

ARGUMENT.

IF YOU'RE TELLING ME TO LOOK ATIT ANOTHER WAY THROUGH THE MATH,

I'M HAPPY TO DO THAT, BUT I FEELLIKE YOU'RE DOING A CHEAT --

>> NO, NOT GOING TO DO THAT. NOTGOING TO CHEAT. OK,

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