Geithner: Patience Needed For Fixing the US Economy

cnbc.com Treasury Secretary Timothy Geithner

Treasury Secretary-designate Timothy Geithner warned Wednesday against rushing out incomplete plans to fix the U.S. economy, saying that could add to financial market uncertainty.

At a Senate Finance Committee hearing on his nomination, Geithner said President Barack Obama would spell out his economic stabilization plans in the coming weeks, disappointing some on Wall Street who had hoped for swifter action.

Geithner laid out an economic philosophy that took a step back from the laissez-faire approach championed by former President George W. Bush. He expressed faith in financial markets, but only with tightly enforced regulations.

• Read Geithner's Opening Statement To Senate

The U.S. Senate Finance Committee plans to vote Thursday on the nomination of Geithner to serve as Treasury secretary under President Barack Obama, the panel said Wednesday. The vote is scheduled for 10 a.m., a day after he was questioned by the panel about how the Obama administration planned to boost the struggling economy. He's expected to be confirmed by the full Senate as early as Friday.

Economic Stability Plans

Geithner proceeded with caution when pressed for details on exactly what Obama's economic recovery plan might include, saying the president would present a three-pronged approach to Congress in the next few weeks.

He said Obama would aim to shore up the financial system so that banks can lend; address the housing crisis; and restore the normal functioning of consumer lending channels.

• TurboTax-Maker Intuit Takes Hit on Geithner Admission

While his tempered response gave Wall Street little new information to trade on, Geithner said he was wary of adding to investor uncertainty "created by tentative signals not followed up by clear actions." Many analysts have complained that the government's response to the financial crisis has been haphazard.

cnbc.com Treasury Secretary Geithner

The $700 billion bailout package in particular has been a source of angst because it was first pitched as a way to buy bad assets from banks, then used to inject capital into banks, and later tapped to provide emergency money to auto makers.

Geithner said the financial rescue package needed to be reformed and acknowledged lawmakers' concerns about the lack of transparency and accountability.

He said assistance for the auto sector should come with conditions that "give us confidence that we can leave the industry stronger and more viable in the future without having to rely on government support."

Approach to Regulatory Reform

Under pressure to respond to the failure of overleveraged financial firms and the Madoff scandal that may have cost investors $50 billion, Geithner made it clear that he believed free markets aren't perfect and tighter regulation was needed.

Geithner said there was too much "skepticism" about the role of supervision in financial markets. "Market discipline is not sufficient in containing risk and injecting the level of prudence necessary. Supervision plays a critical role and supervision could have been more effective," he said.

He said the idea of creating a "bad bank" to soak up assets that are difficult to price or sell was enormously complicated and government needed to tread carefully to minimize the risk to taxpayers. "It is possible that something there will be part of the solution going forward. But I don't want to today provide any more details about how best we can navigate this position," he said.

Deficit and Entitlement Spending

Geithner tried to strike a balance between the need for heavy government spending to prevent the recession from deepening and the responsibility to rein in the budget deficit once the economy is on solid footing.

He said it was important to show investors around the world that the United States was "willing to start to take on and find a consensus on a bipartisan basis for putting Social Security and Medicare on a more sustainable financial position longer term."

Addressing those issues would be hard because the Obama administration was inheriting a deficit estimated at $1.2 trillion, but "the recovery will not be strong enough unless we can make more credible than we've been able to do as a country over the last several decades, our willingness to put our fiscal position back to a sustainable position."

Currency Markets and Trade

When asked about intervening in currency markets, Geithner largely steered clear of controversy, calling it an "enormously delicate" question and offering a cautious answer.

He said it was very important that major trading partners "operate with a flexible exchange rate system in which market forces determine the value of the exchange rates." But he stopped short of charging China with manipulating its currency. He said maintaining confidence in the value of the dollar was "absolutely critical to the fortunes of all Americans." 

Copyright 2009 Reuters. Click for restrictions.