Treasury Secretary Geithner: 'Capitalism will be different'

The Secretary of the Treasury is promising "traction" -- tangible evidence that the financial system is being fixed -- in the weeks and months ahead.

U.S. Treasury Secretary Timothy Geithner, in an interview Tuesday night with PBS's Charlie Rose, admitted that "expectations got ahead of the policy" regarding the administration's plan to fix the banking system, but promised that the plan he's developing with other, senior economic officials will begin to show tangible results.

Geithner called the administration's plan "a comprehensive plan to address the problem" that will use both capital injections to banks to sell toxic assets and federal loans to buy the assets. Geithner also told Rose he'll begin to release details of the program -- the outline for which, released earlier, was deemed "details light" by both Wall Street and the Congress -- but he cautioned investors against judging the program by whether the Dow rises or falls on a daily basis, and he defended the administration's communication strategy for the program.

"It was always our intention to lay out that broad framework of strategy at the beginning so people could see the full scope of the strategy and then lay out the details," Geithner said to Rose.

Geithner, in his now-characteristic calm, uber-informed, and authoritative manner, told Rose the financial system repair has four indispensable parts: 1) getting the recovery back on track with aggressive fiscal stimulus; 2) fixing the housing crisis; 3) helping get credit flowing again, making the financial system work with the recovery rather than against the recovery; and 4) getting the world together to solve the crisis.

"Doing nothing" not an option

Geithner also echoed the opinion of most economists that "doing nothing" would make the recession, already pervasive and deep, even worse.

The Treasury Secretary also said there's private capital that wants to come into the financial system to buy the assets, it's just that it can't get financing. A critical component of the administration's program will do exactly that, he said.

One key: Nonbank institutions

A key component of the program, Geithner said, involves going around the banking system, working with nonbank institutions -- which typically provide 40 percent of the financing in the financial system -- to provide financing to these institutions of up to $1 trillion to purchase toxic assets and free-up credit in small business lending, student lending, auto finance, and the consumer credit markets.

Further, Geithner added that the markets, consumers, and analysts alike will begin to see tangible results from the program in the weeks ahead.

"These things will get traction. They will start to help unfreeze things, and they will help lay the foundation for recovery," Geithner said.

Former U.S. Treasury Undersecretary Randal Quarles, now of the Carlyle Group in Washington, told Bloomberg News Wednesday that the administration's plan is "reasonably well designed; the question now is in the execution."

A new era for United States

Rose concluded by asking Geithner if capitalism in the United States will be different after the intervention.

"I think capitalism will be different, and the financial system will be dramatically different. It's already dramatically different," Geithner said to Rose. "Again, if you look at the scale of adjustment and restructuring in the financial system, it's already happened."

Economic Analysis: The most important points of Geithner's conversation with Rose, for investors? Traction and financing. While investors must remain patient -- healing credit markets will take many months -- if the administration's tactics show positive results or traction soon, that could represent a psychological turning point in the crisis, the sign that we're getting on top of the problem and beginning to get momentum headed in the positive direction.

Second, concerning financing, the administration believes it is cheaper and better to provide U.S. government financing than to have the government buy the assets outright. While not ruling out the possibility of the creation of new banks to supplement the process, the Obama administration believes it's more feasible to use the existing banking infrastructure -- in conjunction with nonbank financial institutions -- to heal, normalize, and strengthen credit markets. And that's the view from here, as well.

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