What Would You Ask Tim Geithner If You Had the Chance?

Treasury Secretary Tim Geithner delivered a populist stemwinder of a speech [1] the other day, bringing his rhetorical A-game with comments like these: "Listen less to those whose judgments brought us this crisis. Listen less to those who told us all they were the masters of noble financial innovation and sophisticated risk management ... Instead, listen to the families and businesses still suffering from this crisis. Listen to those who borrowed responsibly but today can't get a loan or can't refinance their mortgage. Listen to those who lost their jobs and their healthcare and their pension savings. Listen to them."

Great talk - and to the right-wing American Enterprise Institute, no less. They call that "going where the sinners are." And Deputy Treasury Secretary Neal Wolin did the same thing with the U. S. Chamber of Commerce [2], confronting them directly and calling them dishonest and "backward." Maybe Treasury officials thrive in captivity.

Whatever the reasons, the Geithner Treasury Department has suddenly come out swinging. They're pugilists in pinstripes now. But while the rhetoric's encouraging, Geithner's record is cloudy at best. He's been criticized for being too cozy with leading bankers, both at Treasury and in his old role at the Federal Reserve Bank of New york. He's resisted those in the Administration pushing for stronger reforms. He has yet to weigh on clearly on new revelations about the failure of Lehman Brothers and his own role in it. His Congressional testimony yesterday on Fannie Mae and Freddie Mac [3] could best be described as "vehemently noncommital," as he called for an end to those institutions' "ambiguity" while being ambiguous about the best course of action.

Tim Geithner, we hardly know ye.

And if we don't know the Treasury Secretary, we can't fully understand the Administration's financial policy. If the White House is going to succeed in leading the reform effort Tim Geithner needs to do two things: He needs to let the public (and Congress) know where the Administration stands on some key issues, fleshing out the populist talk with policy detail. And he needs to address questions about his past performance, as uncomfortable as that may be. If he doesn't, you can bet that the opponents of real reform will - now, and even more forcefully in November.

We have two sets of questions for the Secretary. Today's address policy and oversight, and the questions on New York and Lehman will come shortly. But we could use your help. We've listed seven topics, but that barely begins to cover it. What would you add, or change? What other areas should be explored? With that, here is Round One of "Ask the Treasury Secretary."

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1. Do you agree with Alan Greenspan, who now says that "if they're too big to fail, they're too big [4]"?

If so, why did you appear to soft-pedal needed reforms like the original "Volcker rule" even as the Administration was introducing them [5]? Do you regret those actions? Does your new rhetoric indicate that you've learned since then? Or is the change only rhetorical?

2. Do you support the Brown Amendment on "too big to fail"?

In line with Mr. Greenspan's concerns and in the spirit of the Volcker Rules, Sen. Sherrod Brown has introduced an amendment (pdf) [6] that would prevent any bank holding company from holding non-deposit liabilities that total more than three percent of the Gross Domestic Product. (It would also give Republican critics of the Dodd draft bill the opportunity to vote for the kind of restrictions they say that they want.)

Three percent is a very large number. Do you agree in principle with this kind of prohibition on institutions becoming too large? If not, please clarify your opinion on "too big to fail" - should it be reduced slowly through some other means, gently discouraged, or permitted but taxed to pay for any future insolvencies?

3. Do you support reducing the amount people owe on their houses, if they owe more than their house is worth and can't afford it?

Bank of America has just announced [7] that it will reduce the principal owed on some mortgages, if people have missed two months or more of payments and the house is now worth 20% or more less than it was when the loan was issued.

Do you support the idea of principal reductions? There are reports that the Treasury Department is looking into doing something similar. If so, what's the delay? Are you concerned that these programs create bad incentives? Do you support the concept but believe eligibility should be determined differently?

Or is the problem not being treated with enough urgency?

4. Do we pay our bank examiners enough?

The Wall Street Journal's Dennis Berman [8] visited the Federal Reserve Bank of Philadelphia and reported that bank examiners there earned $40,000 to $140,000. Their jobs require enormous financial sophistication, and they're going up against bankers with seven-figure salaries and enormous resources at their disposal.

Are our front-line regulators compensated well enough for what they do? And are they given the tools they need to do their jobs? That includes staff, information technology, investigators ... all of it.

To sum up: What are we doing to ensure that our "financial first responders" are adequately compensated and equipped for their enormous responsibilities?

5. Do you agree with critics of the Dodd proposal who say his consumer protection "bureau" wouldn't have protected us from the last financial crisis?

One avenue of criticism is summarized well here [9]: That Dodd's proposed "bureau," whose decisions would be subject to veto by an Oversight Council, would not have been able to prevent unorthodox mortgage products from being introduced had it tried in 2005.

Are you willing to state that the Dodd proposal does not provide adequate consumer protection, and is the Administration willing to expend political capital on the Hill to get something stronger?

6. Should JPMorganChase be allowed to get a $1.4 billion tax break after taking TARP funds?

JPMorganChase is trying to use a loophole [10] to avoi paying $1.4 billion in taxes, using a tax break that allowed companies to write off their losses on five years of income, rather than two. The law specifically excludes companies like Chase that took TARP funds. But Chase bought Washington Mutual and wants to use its exclusion. They bought Washington Mutual for $1.9 billion, and now they want $1.4 billion in tax breaks.

Do you support or oppose this tax break for an institution that received TARP funds?

7. When do you expect to have a proposal on Fannie Mae and Freddie Mac?

Your opponents are making hay with the Administration's delay in rolling out a new plan. The policy vacuum creates an opening for some dangerous rhetoric about taking the government out of the mortgage business entirely,. Yet your only announcement in yesterday's testimony was that you plan to issue a "request for comment" on April 15.

This is painfully reminiscent of the endless rounds of dialog that preceded health reform, dragging the process out and making the reform process even more difficult than it had to be. We understand that it's a complex issue. We also understand that you don't want to panic the markets. But the Administration has been in place for over a year. Even the head of the Federal Housing Commission [11]has had to concede that "We are at the point right now where no one trusts the American housing finance system."

When can we expect your proposal on the reorganization of Fannie and Freddie?
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Secretary Geithner's time at the New York Fed will be the subject of our next "Ask the Treasury Secretary." In the meantime, let's "crowdsource" this project a little more. What would you ask the Treasury Secretary if you had the chance?