–Dollar Peg ‘Makes Sense’ For Small Economies like Hong Kong
–New Govt Small-Bank Lending Program Would Help Weather Comm Real Est
–Left Choice of Citi Stock Sale Underwriter to Others
–Not Going to Re-Create the Old Fannie and Freddie
–Repeats, Providing Capital Necessary to Fannie/Fred,’Past and Future’
WASHINGTON (MNI) – Treasury Secretary Tim Geithner, in a wide
ranging interview on CNBC Monday afternoon, said the economy is
“probably just on the verge now, of what we think to be a sustained
period of job creation, finally.”
Geither also said a currency pegged to the dollar “makes sense” to
small economies like Hong Kong but not for China, where the commitment
has been made to move to a “gradual, flexible exchange rate system.”
Geithner said he made the choice of chief underwriter of the
Treasury’s sale of nearly 8 million shares of Citi stock to others in
the department, but the process will be to sell a certain share of
trading volume on a regular basis through the year, with no market
timing decisions on Treasury’s part.
He repeated that assessing how best to generate low-costs mortgages
without the old Fannie Mae and Freddie Mac is going to take many months
but the old system will not be re-created. Meanwhile, the government
will provide whatever capital so the GSEs can meet their obligations,
“past and future.”
And weathering the future of commercial real estate is going to be
“tough” for small banks that became too concentrated in it. He said the
president has proposed to Congress a new small-bank lending program that
will keep feeding capital to the institutions that promise to use it to
lend to small business.
With the March jobs report Friday, Geithner said, “I think you can
say generally that as the economy is getting stronger — and the economy
is getting stronger. You know, we’re probably just on the verge now, of
what we think to be a sustained period of job creation, finally.”
And, he added, “We’re going to continue to reinforce that
recovery.”
On financial regulatory reform, “We’re getting close,” he said,
even on the big issues raised by Sen. Chris Dodd’s regulatory reform
proposal.
Even on the controversial part that would have large banks
contribute $50 billion to a fund to be used for orderly closures of
big failing banks,”I think we’re pretty close,” he said.
“You want to be able to draw a firebreak around the fire,” he said.
“You want to make sure the fire can’t jump from the failing firm and
threaten the rest of the financial system.”
On commercial real estate, “It’s going to be hard to manage through
that process,” he said. “And it’s going to put a lot of pressure on
small banks across the country that got themselves too exposed to
commercial real estate. But we can manage through this process.”
The president’s proposed small-bank lending program would “make
sure small banks can come to the Treasury, get capital, if they commit
to use that capital to expand lending” and “that will help them to
manage through that process.”
The sale of the 7.7 million shares of common stock in Citigroup
held by Treasury, confirmed earlier in the day, “just points out how far
we’ve come,” Geithner said.
Asked why Morgan Stanley was made the chief underwriter in what
would be the second largest stocks sale ever, he replied, “Oh, that’s
not something I can speak to. We have a good team of people that looked
at the competition carefully and they made a good judgment.”
On the question of underwriter, “I left that judgment to may
colleagues in the Treasury. and they looked at a variety of proposals.
They thought this made the most sense.”
“What we’re proposing to do — because we don’t want the government
making market-timing decisions, and we want to get out as quickly as
possible — is a process where the government would sell, on a regular
basis, a specific share of trading volume,” Geithner told CNBC. “And
that will take us several months, therefore, to unwind our shares. And
that seemed like a sensible way to do it.”
As to Fannie and Freddie, they “are part of a more complex process
of reforms we have to consider over the next several months,” he said.
“We have to take a look at the broad housing finance system in the
country.”
The system “worked very well for the country for many, many
decades. But,” he added, “as you can see, large parts of it are broken.”
The eventual administration proposals on the GSEs will not be to just
“deal with Fannie and Freddie but broader reforms to make sure we have a
housing finance system in the future that does a better job of providing
a stable source of low cost mortgages to the American people.”
Geithner stated twice, in almost exactly the same words, his
declaration of complete support for Fannie and Freddie, what’s become
another mantra as familiar as that used by Treasury secretaries to say a
strong dollar is in the nation’s interest. “I’ll say what I said then at
the hearing and I’ll never change this basic view, which is that we have
made it clear we will provide whatever capital, whatever amount of
capital is necessary, to make sure that those two institutions can meet
their obligations, past and future.”
That, he added, is “a very important commitment and I’m going to
stick to that.”
Given the opportunity to say it again, he did, having been asked if
he was “explicitly guaranteeing the combined $1.6 trillion in debt and
$5 trillion in mortgage backed securities” held and generated by Fannie
and Freddie.
“I’ll say it exactly the way I said it,” Geithner said. “We’re
going to make sure — people understand we will provide whatever capital
is necessary to those institutions to meet their obligations past and
future. And that’s an important thing to do, again, because they are so
important now in making sure Americans have access to affordable
mortgages across the country.”
On the GSE’s future, “We’re not going to go back to the system the
way it was,” he said. “It made no sense for the country to mix — to
have that complicated mix of private shareholders with public interests
with the implicit sense the government would be there to protect them
from loss.” The Obama administration is “not going to re-create
that system so we have to change
the system fundamentally.”
“You know this is complicated, difficult to do and we want to do it
carefully and well,” he said. “And again, it’s not just about Fannie and
Freddie. It’s about the entire mortgage financing business.”
On another company still owned by the government, AIG, Geithner
said the firm “has been making incredibly rapid progress in putting in
place a restructuring plan that brings down the risks in AIG financial
products, which was where a lot of the risk was concentrated.”
Overall, he said, “Our financial system today is in a much, much
stronger position that it was a year ago, two years ago, three years ago
before the crisis, in part because we’ve had a huge wrenching
restructuring of the system. The weakest parts of the system no longer
exist today.”
Asked why the U.S. government does not complain about Hong Kong’s
currency peg the way it does about China’s, Geithner responded,
“Countries around the world that run fixed exchange rate regimes through
currency boards like Hong Kong or other types of monetary arrangements
and for small economies in particular circumstances, that makes sense.”
Now, he said, “China’s in a different position. China’s a very
large economy and the Chinese leadership has recognized for a long
period of time that it’s important for them as a country to move over
time to a more gradual, flexible exchange rate system.”
Geither concluded, saying “China has a very good record, if you
look back over the last three decades, of setting out broad reforms and
delivering on those reform commitments.” A flexible currency “is
something they’ve recognized as important to them, in their interests,
and that’s why I’ve said many times — I’m not saying anything new today
— that I think it’s quite likely China will decide in its interests to
move to a more flexible exchange rate system.”
** Market News International Washington Bureau: 202-371-2121 **
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