Obama to unveil new rescue plan: Geithner
Treasury nominee offers no estimate of cost, signals more money needed
By Greg Robb, MarketWatch

Last update: 4:56 p.m. EST Jan. 21, 2009
Comments: 1081WASHINGTON (MarketWatch) --

President Obama is working on a comprehensive bank-rescue package that will be unveiled in the next few weeks, according to Timothy Geithner, Obama's nominee to be the nation's next Treasury secretary.

In testimony Wednesday before the Senate Finance Committee, Geithner didn't say how much the new package would cost. He refused to give specifics, saying that Wall Street wouldn't benefit from advance signals.

Paul Volcker, the former Federal Reserve Board chairman, told the panel that the cost of fixing the banks would cost several trillion dollars. No one took issue with that estimate.

More government assistance would be needed, Geithner added, because the crisis is far from over. More money also will have to be used to get credit markets back to normal.

The Senate has just approved giving Treasury the second half of the $700 billion rescue fund.

Geithner said the new plan would address concerns arising from the first bailout overseen by former Treasury chief Henry Paulson, with assistance from Federal Reserve Chairman Ben Bernanke and Geithner in his role of president of the New York Federal Reserve.

The Treasury would begin to work more closely with the Federal Deposit Insurance Corp. and the Fed, according to Geithner.

He also promised top-to-bottom reform of the government's rescue plan for financial markets in remarks during his confirmation hearing. "We have to fundamentally reform this program to ensure that there is enough credit available to support recovery," Geithner told legislators.

Moreover, he vowed aggressive action to get the economy back on track and pledged to strengthen what he called a "fragile" U.S. financial system.
'We need to make it work'

Geithner had an unenviable task in his question-and-answer session with the panel: explaining to the senators why the $700 billion TARP, or Troubled Assets Relief Program, hasn't cleaned up the mess.

As the current president of the Federal Reserve Bank of New York, Geithner was a key participant in discussions with Paulson and Bernanke that led to the first bailout plan.
"Obviously, you played an instrumental role in developing this rescue plan," said Sen. Olympia Snowe, R-Maine.

Geithner said he was at the "center" of the efforts to stem the crisis. He said he urged aggressive action beginning in early 2007, when the first sparks of the financial fire were seen.

But Geithner suggested he had much more influence on central-bank efforts, although he urged Paulson to seek new power.

The government did move to counter the crisis, but not aggressively enough, he commented.

Geithner said the first rescue package was absolutely necessary, and was a success in that the crisis would have been far worse without it. But he admitted that the financial system "remains under stress."

The nominee told the panel that he understands the frustrations with the plan, but that the only course was to fix it. "This is an important program and we need to make it work," according to Geithner.

He said the first plan suffered because it appeared "ad hoc," with confusion about its ultimate goals.

Geithner was contrite about his tax errors, saying the unpaid taxes were 'careless' and 'avoidable' mistakes. But he said that they were 'unintentional' errors, and that he had used TurboTax software to prepare his returns.

Talk of a different approach, like establishing a "bad bank" to quarantine "toxic" mortgage assets, surfaced last week, just as Bank of America Corp. and Citigroup Inc. revealed new problems.

Geithner acknowledged that the concept of a "bad bank" was under consideration.

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