Geithner: Changing a "dangerous dynamic"

Treasury Secretary Timothy Geithner is set to announce today a public/private partnership aimed at increasing the flow of credit from banks, as part of the Obama administration's efforts to improve the government's response to a tattered financial system, according to an administration source.

In remarks prepared in advance provided by an administration source, Geithner says that the freezing up of lending -- despite the infusion into banks of billions of dollars by the previous administration -- means that, "Instead of catalyzing recovery, the financial system is working against recovery, and that's the dangerous dynamic we need to change.

"This is a challenge more complex than any our financial system has ever faced, requiring new systems and persistent attention to solve. But the President, the Treasury and the entire Administration are committed to see it through because we know how directly the future of our economy depends on it."

The administration sees the latest disbursement of funds in the $700 billion Troubled Assets Relief Program (TARP) as part of a two-pronged approach, the other being the approximately $800 billion economic stimulus package President Obama is hoping will pass the Senate today and soon make it to his desk for signature.

"It is essential for every American to understand that the battle for economic recovery must be fought on two fronts," Geithner says. "We have to both jumpstart job creation and private investment, and we must get credit flowing again to businesses and families."

Geithner says the previous administration's actions taken under the TARP program were "absolutely essential, but they were inadequate. The force of government support was not comprehensive or quick enough to withstand the deepening pressure brought on by the financial crisis."

He also acknowledges that giving money to the same financial institutions whose actions caused the fiscal crisis in the first place, with little transparency or oversight, increased public distrust of both banks and the government.

Key to the success of the plan going forward -- given criticisms of how his predecessor, Secretary Henry Paulson, managed the first $350 billion spent through TARP -- are provisions meant to ensure accountability and transparency, as well as conditions to be placed upon any financial firm which agrees to take TARP funds.

Geithner will introduce the four key elements of the plan, including stricter banking regulations; a new consumer business lending initiative; a new public/private investment fund; and a program to help reduce home foreclosures.

Treasury will also launch a new Web site, FinancialStability.gov, which will detail where these federal funds are going and whether they are succeeding in stabilizing the financial system and promoting new lending, including posting all contracts on the Internet.

"I want to be candid: This comprehensive strategy will cost money, involve risk, and take time," Geithner says. "We will have to adapt it as conditions change. We will have to try things we've never tried before. We will make mistakes. We will go through periods in which things get worse and progress is uneven or interrupted. But we will be guided by the principles of transparency and accountability, dedicated to the goals of restoring credit to families and businesses, and committed to moving our nation towards an economic recovery that is as swift and widespread as humanly possible."