Geithner Q&A

Earlier this week, treasury secretary Tim Geithner sat down with TIME managing editor Rick Stengel at an economic summit hosted by Time Warner in New York City to discuss the outlook for the economy and President Obama's overhaul of the financial regulatory system. Later, the Secretary answered additional questions about the new financial rules and regulations. Some excerpts:

How does this plan attack the causes of the crisis, and would it have prevented the crisis had it been in place?

|A major problem that led to the crisis was that financial institutions--especially the largest, most complex and important ones--weren't held to a high enough standard. In boom times, that problem wasn't visible, but those firms turned out not to have the capital and liquidity cushions they needed in times of true stress. Our plan fixes that too. There are a whole range of areas--from consumer protection to the establishment of a coordinating council of regulators--where our plan puts in place measures that would have made it more unlikely for things to get as far out of hand as they did in this recent crisis. And we do it in a way that will allow us to get the upside of market-driven innovation while protecting against the downside risk of market excesses.

What is your response to those who say the plan does not go far enough in protecting consumers?

We would create a single regulatory agency, a Consumer Financial Protection Agency. This agency will have only one mission--to protect consumers--and have the authority and accountability to make sure that consumer-protection regulations are written fairly and enforced vigorously. Consumer protection will have an independent seat at the table in our financial regulatory system. By consolidating accountability in one place, we will reduce gaps in federal supervision and enforcement, drive greater clarity in the information consumers receive around products they are sold, set higher standards for those who sell those products and promote consistent regulation across the system.

The toxic-assets-buying program: Is that dead?

No, not at all.

What you are suggesting is that because the system seems to be getting healthier, the banks think the price for the toxic assets is not high enough.

The key test again for the system is, Are banks able to raise equity? Are investors confident enough in their ability to judge the strength of the banks' balance sheets that they're willing to put equity into a bank? We've seen substantial progress in that area. Now we're still going to put in place these facilities for legacy assets because we think they are good insurance against the risk of a future downturn, and we think they provide some broad help to this process of thawing receding credit markets. If the world gets progressively better, you may see less demand for those facilities.

So the banks are getting healthier; 10 of them have returned the federal money. Why are they not lending at the level we had hoped?

Remember, this is a crisis born in part of the fact that households around the world in particular took on too much debt. So debt as a share of our economy rose to extraordinarily high levels, and we're having a recession that is deeper in part because people are having to go back to living within their means. It means probably that you're going to see a slower recovery than we would normally see.