This morning, the Senate Budget Committee held a hearing entitled “Policies to Address the Crises in the Financial and Housing Markets,” at which Treasury Secretary Timothy Geithner testified as the sole witness before the Committee. In his opening statements, Secretary Geithner broadly outlined the elements of Treasury’s new Financial Stability Plan released yesterday, as follows:

  1. Increased transparency and accountability: A new framework of oversight and governance will be established to allow U.S. taxpayers to identify where their tax dollars are going, the return on the government’s investments, and the enforcement of conditions placed on banks regarding the use of government funds, lending, and executive compensation.
  2. Financial “stress test” for banks: Government agencies overseeing the nation’s major banks will initiate “a more consistent, realistic, and forward looking assessment about the risk on balance sheets,” and will provide a program of capital support for banks that need it. Conditions will be placed on the capital assistance to generate a “level of lending greater than what would have been possible in the absence of government support.”
  3. Public-Private Investment Fund: The fund, which will provide government capital and financing to leverage private capital and restart the private markets, will target legacy loans and assets burdening many financial institutions.
  4. Consumer and Business Lending Initiative: In connection with the Federal Reserve’s Term Asset-Backed Securities Loan Facility (TALF), this program is intended to “kick start the secondary lending markets, [b]ring down borrowing costs, and [h]elp get credit flowing again.”
  5. Comprehensive housing program: In the next few weeks, President Obama will release a comprehensive plan addressing the housing crisis which will help prevent avoidable foreclosures and reduce mortgage interest rates. This plan will be implemented through use of resources already authorized by Congress under the Emergency Economic Stabilization Act of 2008.

Throughout the hearing, Secretary Geithner acknowledged public criticism of the lack of details released with the Financial Stability Plan, and stated that he and the Obama administration want to prioritize taking the necessary steps and time to “get it right,” prior to releasing details. However, he indicated that the President, Treasury, Federal Reserve and FDIC are making progress on determining what conditions will be imposed on banks receiving government assistance, including with respect to offering mortgage modification plans and increasing lending levels.

Committee members expressed their concerns regarding the strains being placed upon the national budget as a result of past and forthcoming government commitments to alleviate the financial and housing crises, through the imminent economic stimulus plan and investments and guarantees. While acknowledging both his past advocacy of fiscal responsibility and restraint and the “deep challenges” facing the government in balancing the budget, Secretary Geithner explained that the nation is currently experiencing a terribly challenging fiscal crisis and “inaction is not an option.” Thus, he stated, the most fiscally responsible course of action now is to address the current problems aggressively and forcefully through additional spending and tax cuts, because if “we are gradualist in approach,” it will be harder to return to a sustainable fiscal position in the future. He also maintained that it will be necessary, as the government moves forward, to lay out a set of commitments for a budget that achieves a sustainable balance in the long-term.

Secretary Geithner emphasized at various times throughout the hearing that the broad numbers cited by the media regarding budget exposure do not represent direct claims on taxpayer resources, and that he was not coming before Congress today to ask for additional resources for the Financial Stability Plan. Rather, he stated, the objective is to minimize taxpayer costs and get credit flowing through the economy again through the efficient use of resources already authorized by Congress.

Finally, several Committee members expressed their outrage of the behavior of Wall Street executives (many of whom testified at a separate hearing today before the House Financial Services Committee) that they claimed was the cause of the current crisis, inquiring what would be done to prevent this behavior in the future. Geithner acknowledged the “deep sense of distrust and outrage” created by the cumulative judgments of a few firms and their boards of directors, reiterating that Treasury had issued stringent new executive compensation limits last week for institutions receiving TARP assistance to address those concerns.