Geithner on the Record: Toxic Assets

estimate where private investors be at risk, or generally maybe –

SECRETARY GEITHNER: The key thing is their capital would be at risk. That’s the key thing. So that’s the important benefit in that context. So rather than having the government assume all the risk in an asset purchase scheme, you’re having substantial risk borne by private investors in this context, and that — you know, we’re not doing that for their benefit. We’re doing it because we think that’s the most effective way to get these markets working again, to get risk premium down, borrowing costs down, in ways that leave the taxpayer less exposed.

Q But the government will be taking the majority of the risk here once the — if you’re doing one-for-one losses –

SECRETARY GEITHNER: Look, there is no doubt the government is taking risk. You cannot solve a financial crisis without the government assuming risk. The only question is, how best to do it, and what’s the best way to do it; what’s the way to do it where you get the incentives better and you’re maximizing the impact of a marginal dollar of taxpayer assistance. And that’s what this is designed to do. And I am very confident this scheme dominates all the alternatives for trying to find that balance.

Yes.

Q The FDIC obviously is very involved here. I talked to individual investors, smaller investors, over the weekend, and some of the stuff that they’re worried about is exactly what’s going on with the FDIC: one, that the FDIC needed to get that $100 billion credit line; two, are they going to extend the size of deposit insurance, because people are worried about should I buy a $250,000 CD if the insurance is going to expire at the end of the year; and third, what about money markets? Does that — does the money market insurance program need to expand past April — the end of April?

SECRETARY GEITHNER: Well, I want to step back one sec, because this is a very important issue. Americans can be fully confident that their deposits in the banking system are fully safe and protected. The FDIC has proposed — and we are very supportive of this — a range of different measures to give them a little greater flexibility for managing through this, including, temporarily, through a larger credit line from the government than the Treasury. And I think that’s a prudent, necessary step; we’re perfectly comfortable about that — perfectly supportive of that.

Now, it’s also important that the FDIC has extended their temporary guarantee program for an additional surcharge, for — that allows banks and bank holding companies to issue debt at longer maturities. And we’ve made it very clear that we want to make sure that the banking system has the ability to meet its broader commitments as we go through this challenging period, because that’s important to make sure that we allow — well, it’s sort of — it’s just basically central to trying to make sure that, again, there’s going to be enough credit and rates

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