Geithner Wants ‘Very Substantial’ Changes in Wall Street Compensation

ABC News’ Matthew Jaffe and Rick Klein report: Treasury Secretary Tim Geithner said in an interviewing airing this weekend that he wants to see “very, very substantial change” in executive compensation practices on Wall Street, and said he will unveil the administration’s plan for reforms “within weeks.”

“I don’t think we can go back to the way it was,” Geithner said in an interview on Bloomberg TV’s “Political Capital with Al Hunt.” “That would not be responsible for us, not good for our financial system. So I think we’re going to need to see very, very substantial change in practice.”

“We want to start the process of putting in place ‘say on pay’ type requirements and broader standards that supervisors look at to make sure that the incentive structures that compensation creates don’t overwhelm the checks and balances in the system again,” he said.

Earlier this week Geithner had said the government should not set compensation caps, but rather put in place “broad constraints” that emphasize long-term incentives, not short-term ones, to prevent excessive risk-taking.

The administration’s compensation plan is only one of many upcoming changes, he noted.

“We’re going to probably propose substantial changes in the existing framework, because, again, our framework is designed for a different financial system a long time ago,” Geithner said. “It has not kept pace with change. It’s too complex. There are too many regulators, and there are too many gaps in the system. So we’re likely to propose pretty significant changes across the board.”

One reform the administration has called for is the establishment of a systemic risk regulator. A white paper on this issue, Geithner said, will be released “in the next several weeks.”

In the interview with Hunt, Geithner also expressed concern about big banks repaying TARP funds too quickly and then coming back to the government for more help in the future.

“I think that’s a real concern, but I think we’re going to be very careful to make sure that we reduce the incentives for that to happen,” the Treasury chief said.

A number of major banks, such as JP Morgan Chase, Goldman Sachs, and Morgan Stanley, have all reportedly applied to pay back the TARP money. But Geithner noted that financial institutions can only pay back the money if they meet certain requirements.

“We’re saying, in order to repay, it’s important you really have a lot of capital above what you need, but also that you demonstrate that you can go issue unguaranteed debt in the markets today on a substantial scale, because we want to see proof that the market is going to judge you strong enough to do that on your own. And those are important conditions.”

However, Geithner cautioned that the government could not require these banks to boost lending.

“It’s very hard for the government of the United States to force banks to lend,” he said.

“Lots of countries have got themselves in deep trouble with policies that force their banks to lend,” he added. “That’s likely to lead to a weaker, less efficient banking system, less efficient economy. What I think we need to do is make sure they have the capacity to lend.”

In the interview, Geithner was asked about Republican claims that the Obama administration was leading the country towards socialism, claims he vigorously refuted.

“I think it’s the least plausible charge anybody could say about what this president is trying to do in terms of policy,” he stated. “I mean, I think if you look at the range of things he’s proposed and he’s started putting in place, there is a deep appreciation and recognition that we need the markets to work, that growth and productivity depends on the markets working.”

‘Top Line’: Huffington on Michelle Obama, Geithner, Stewart v. Cramer

ABC News’ Rick Klein reports: On today’s “Top Line,” we chatted with Arianna Huffington about a range of topics — the G-20, the example Michelle Obama is setting for women, Tim Geithner, and her new investigative journalism project.

Huffington, the editor-in-chief and cofounder of Huffington Post, had glowing words for the first lady:

“Michelle Obama is so authentic and so much herself at a time when the whole world is longing for authenticity, for people who are just really teaching us things as they go through their life, and look how much she has already taught us,” she said.

“She had her mother move into the White House, which I love because I’ve been a big proponent of grandparents playing a bigger role in the raising of their children. She has this fabulous vegetable garden for organic food at a time when obesity is becoming a huge problem in this country. She wears flats on many occasions, which gives women around the world permission to throw away their high heels. And all those teachable moments, as well as the fact that she’s beautiful, smart and elegant, have made her a huge attraction.”

She’s less impressed with the treasury secretary: “My problem with Tim Geithner was never his communications job. It was not his delivery it was what he’s delivering. I just think that the Geithner plan is not going to work,” Huffington said.

Click HERE to see our full interview with Arianna Huffington.

And click HERE to see us talk through the day’s news with Republican strategist Kevin Madden — on the G-20, the budget battle on Capitol Hill, and whether Sen. Chris Dodd, D-Conn., should be worried about his political future. (The answer to that, Madden says, is yes.)

Geithner calls for comprehensive regulatory reform

ABC News’ Matt Jaffe & Rick Klein report:

Treasury Secretary Tim Geithner Tuesday will ask for new regulatory powers for the federal government to address financial institutions whose failure could threaten the stability of the nation’s financial system.

“This is an extraordinary time and the government has been forced to take extraordinary measures,” Geithner says in an excerpt of his prepared testimony for this morning’s House Financial Services Committee hearing. “We will do what is necessary to stabilize the financial system and, with the help of Congress, develop the tools that we need to make our economy more resilient and our system more just…”

“We must ensure that our country never faces this situation again. To achieve that goal, the Administration and Congress have to work together to enact comprehensive regulatory reform and eliminate gaps in supervision,” he is expected to state. “All institutions and markets that could pose systemic risk will be subject to strong oversight, including appropriate constraints on risk-taking. Regulators must apply standards, not just to protect the soundness of individual institutions, but to protect the stability of the system as a whole.”

Today’s hearing will focus on AIG, the embattled insurance giant that has received over $170 billion in government bailout funds. A “resolution authority”, the administration believes, would have enabled the government to intervene with AIG to prevent the current predicament.

The new resolution authority would give the government the ability to sell or transfer assets and components of a company. The government would have the power to renegotiate or dissolve executive compensation deals, as well as deal with risky derivatives portfolios. The goal is to make sure the country never has to confront a situation like AIG in the future.

Geithner has been vocal in recent weeks about the need for more tools to protect the nation’s economy.

“It’s a terrible, tragic thing that this country came into this crisis with such limited tools for trying to protect the economy itself from the kind of distress that’d come as the system came back down to Earth,” Geithner said Monday night at the Wall Street Journal’s Future of Finance Initiative in Washington.

“Our system basically failed its most fundamental test,” he stated. “It was too fragile. It was too vulnerable to shocks. It did not adequately put in place a set of checks and balances on risk-taking that had systemic consequences. You had failures in consumer protection at the basic level cause grave systemic consequences for the system as a whole. And we have a great obligation to get this right.”

“I mean, the world is watching us,” he noted. “They’re looking at what happened in our markets. And we have got to figure out — we have got to get ourselves to the point where we put in place a stronger, more stable system that provides a better balance between efficiency and stability. We just have not gotten that balance right. And we have a great obligation as a country to move to try to restore that.”

Geithner said Monday that the government has the opportunity to turn the nation’s frustrations with the current crisis into implementing an improved regulatory framework.

“You want to take that frustration and channel it to a credible reform agenda that people can look at and say, “That has the prospect of producing a more stable system,” that preserves capacity for innovation, still does what our markets do better anywhere in the world, which is we still have the system that does the best job in the world of taking the savings and investments of people around the world and channeling them to help finance putting an idea into a growing business. We are excellent at doing that.”

“Our judgment is that that the credible solution is going to have to have a bunch of elements,” he said, previewing the government’s plans. “We’re going to have to bring a stronger form of basic oversight with better designed constraints on leverage applied to those institutions whose stability is really critical to the functioning of the system. We’re going to have to bring a better oversight framework over the markets that are so critical to how the system works.”

The financial regulatory reform framework is the latest in a series of sweeping moves made by Geithner and the Treasury Department to address the current crisis and prevent future ones. On Monday, he unveiled the administration’s plan to rid banks of the toxic assets weighing down their balance sheets, a move that sent the markets soaring by almost 500 points, the fifth biggest gain in history.

– Matt Jaffe & Rick Klein

Democratic Senators Tepid on Geithner Support

ABC News’ Rick Klein reports: With President Obama pronouncing his “complete confidence” in Treasury Secretary Tim Geithner’s leadership, we thought it might be interesting to ask members of the Senate Democratic caucus whether they agree.

The answer? When their offices were contacted by ABC News, fewer than half of Senate Democrats were willing to echo the president.

Of the 58 senators in the caucus — 56 Democrats and two independents — 21 answered “yes” when we asked their offices whether they have “complete confidence” in Geithner.

Only one of the senators — independent Bernie Sanders of Vermont — answered “no.” Sanders voted against Geithner’s confirmation, and said through a spokesman that he sees the secretary as “part of the problem.”

As for the remaining senators, quite a few didn’t respond, or a press representative said they couldn’t reach the senator to get a response. (We first made contact with all Senate offices Thursday afternoon, and gave them until Friday afternoon to respond.)

Some, like Senate Majority Leader Harry Reid, said they never respond to surveys like this. Nonetheless, a Reid spokesman said it’s fair to characterize Reid’s support for Geithner as “complete confidence.”

Then there’s another group that’s firmly on the fence on Geithner — at least publicly.

The office of Sen. Barbara Mikulski, D-Md., responded by saying: “Our President has stated his support for Secretary Geithner.”

The office of Sen. Robert Byrd, D-W.Va., wouldn’t answer “yes” or “no,” but pointed out: “Senator Byrd did not support Mr. Geithner as Treasury Secretary.”

The 21 senators who answered “yes” to our query: Baucus, Bennet, Bingaman, Boxer, Burris, Cardin, Carper, Dodd, Durbin, Gillibrand, Kerry, Klobuchar, Landrieu, Lautenberg, McCaskill, Menendez, Leahy, Reed, Schumer, Shaheen, and Warner.

Even in the group expressing “complete confidence,” we got some responses indicating that may not always be the case. Said Sen. Mary Landrieu, D-La.: “While he exercised extremely poor judgment about the AIG bonuses and must lead the effort to recoup those bonuses, I remain supportive of the Secretary for now.”

Said Sen. Chris Dodd, D-Conn.: “He has the President’s support and backing, and he has mine at this point.”

Sen. Barbara Boxer, D-Calif.: “I have total confidence in President Obama and I will support the team he puts together as long as he has confidence in them.”

This is all very unscientific.

Then again, these are Democratic senators being asked whether they have full faith in a Democratic president’s Cabinet secretary, just two months into an administration. The president has gone out repeatedly in recent days to voice his full support for Geithner.

It does seem to underscore the extreme scrutiny being applied to the president’s Treasury secretary in the wake of this week’s revelations surrounding AIG bonuses. Few lawmakers in either party are calling for his head, but his support on Capitol Hill is clearly not as strong as it is in the White House.

ABC News’ Sara Just, Jonathan Greenberger, Jennifer Parker, Courtney Cohen, Mary Bruce, Ferdous Al-Faruque, Lindsey Ellerson, Teddy Davis, Caitlin Taylor, and Huma Khan contributed to this report.

Kerry: Geithner ‘Has to Lead Now’

ABC News’ Matthew Jaffe & Rick Klein report:

Treasury Secretary Tim Geithner took office six weeks ago. In that time, the Treasury Department has launched a $2 trillion financial stability plan to rescue the nation’s struggling banks and unveiled a $275 billion program to help homeowners avoid foreclosure. All this with a bare-bones staff at his disposal.

But with the economy shedding jobs and Wall Street continuing its spiral, already some prominent lawmakers — including some on the left — are calling for Geithner to speed up the process.

“The secretary has to lead and he has to lead now, as soon as possible,” Sen. John Kerry, D-Mass., said in an interview with Bloomberg TV’s Al Hunt that will air later this weekend.

Kerry, a senior member of the Senate Finance Committee, noted that Geithner and his aides “deserve the leeway” to make carefully considered judgments — but made clear that he expects big new steps.

“They’ve shared with people, sort of, how they’re moving,” Kerry said. “I think they’re going to, hopefully, move somewhere in the near term and I urge them to do so. But I think they deserve the leeway to be able to make that judgment.”

But his comments come at a time when impatient critics are already placing Geithner’s job on the line.

House Republicans want answers from Geithner on TARP funds

ABC News’ Matthew Jaffe reports: House Republicans today asked new Treasury Secretary Tim Geithner to answer a series of questions before he outlines how the administration will distribute the second half of the $700 billion Troubled Assets Relief Program (TARP) and possibly requests more money to bail out struggling banks.

“What is the exit strategy for the government’s sweeping involvement in the financial markets?” ask top GOP House lawmakers, including House Minority Leader John Boehner and Minority Whip Eric Cantor, in their letter to Geithner.

The distribution of the initial $350 billion of TARP funds was widely criticized. Geithner, who has vowed to improve the accountabilty and transparency of the embattled program, is set to announce Treasury’s plans for the second tranche of money next week, but the administration may deem more funds are necessary to save the financial sector. One option could be establishing a ‘bad bank’ to help banks weighed down by toxic assets.

“Because the Administration has committed itself to assisting the auto industry, satisfying commitments made by the previous Administration, and devoting up to $100 billion to mitigate mortgage foreclosures, it has been reported that President Obama might need more than the $700 billion authorized by the Emergency Economic Stabilization Act (EESA) to fund a ‘bad bank’ to absorb hard-to-value toxic assets,” write the GOP leaders.

“In light of these commitments – which come at a time when the Federal Reserve is flooding the financial system with trillions of dollars and the Congress is finalizing a fiscal stimulus that is expected to cost taxpayers more than $1.1 trillion – it is not surprising that the American people are asking where it all ends, and whether anyone in Washington is looking out for their wallets,” they ask.

In January, the House voted against releasing the second tranche of TARP funds at the request of President Obama, but the money was released anyway by the Senate.

Last week, Democrats pushed the massive $819 billion stimulus package through the House, despite no Republicans voting for it even after Obama had gone to Capitol Hill to court GOP support the day before the vote.

The Senate is now debating its own version of the stimulus bill.