Treasury Secretary Timothy Geithner appeared on PBS NewsHour last night to discuss, among other items, the financial reform bill that is awaiting final passage by the Senate when they return from recess next week.
In his conversation with NewsHour host Jim Lehrer, Secretary Geithner expressed confidence that the Congress will soon deliver a strong bill to President Obama’s desk:
LEHRER: The financial reform legislation: Is there any question in your mind this could eventually pass the Senate and be signed by the president?
GEITHNER: No, it looks like it's going to pass. And it should pass, again, because all Americans have a stake in this financial reforms. Remember, think what it was like 18 months ago. You know, people saw worst financial crisis in generations, the value of their savings fall by 40 percent, on average. Millions of people lost their jobs, lost their homes, saw businesses fail. This crisis touched everybody, and it demonstrates why all Americans have a stake in reforms that are going to give better protections for Americans and make sure that the financial system goes back to the business of helping Main Street businesses get access to credit so they can borrow to invest and expand.
The Secretary also stressed that the bill will make the financial system safer for all Americans, create the strongest consumer protections that the United States has ever had, and limit risk-taking by large financial institutions:
LEHRER: It's a very complicated bill, and we don't have time to go through the whole thing, but one of the things that caused the financial crisis was this "too big to fail idea," particularly among the banks. And most of the analysis of the current situation is, these banks are not only as big as they were; some of them are even bigger, now, than they were when the financial crisis hit. So how's anything going to change?
GEITHNER: Two most important causes of this crisis, Jim, were that we allowed a bunch of financial activity to operate in the shadows. Firms take on enormous amounts of risk without the financial cushion and capital to back those investment moves they made, and we let millions of Americans be taken advantage of, vulnerable to fraud and abuse. That's what caused the subprime crisis.
Now, what this bill does, though, is extend to all Americans - consumers and investors - much better protections against fraud and abuse and predation, and will limit risk-taking by these large institutions so they can never again put the economy in a position where the mistakes they make put the economy at risk as a whole.
Additionally, Secretary Geithner explained why the financial reform bill will help avert and limit the damage caused by future financial crises:
LEHRER: If this bill becomes law, does that mean we are no longer at risk of a similar financial crisis?
GEITHNER: We will have a much better chance to prevent future crises and limit their damage -- act much more effectively and much earlier and limit the damage and not leave the taxpayer exposed to bearing the burden of these crises. These are very tough reforms, very strong reforms, and they will help restore trust and confidence in the system.
Think back, Jim, to the Great Depression. It took this government four years after the great crash of 1929 to put in place basic protections for banks, and the securities laws, and those reforms laid the foundation for decades of the most-impressive record of investment, innovation, growth any major economy had ever seen.
But we allowed the moss to grow, risks to operate in the shadows. The market outgrew these protections, and the damage caused by that failure was catastrophic. But what these reforms do is prevent that from happening again, because it will extend this set of protections across the economy and make sure, again, banks can't take risks on the scale that they could damage the economy as a whole.
As Secretary Geithner noted, Congress is close to passing the most sweeping set of reforms to our financial system in more than a generation. It is impossible to deny that this will truly be a historic achievement for the Administration, for Congress, and, most importantly, for our country.
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