Geithner: ‘Very Substantial’ Consumer Protection Changes Needed in Finance Sector
Treasury Secretary Tim Geithner appeared on Capitol Hill this morning, testifying for the first time before the congressional oversight panel created to monitor the Wall Street rescue plan. He didn’t have an easy time of things, getting grilled from the panel’s liberals and conservatives alike over things like rising foreclosures and the shift in government bank holdings from preferred stock, which pays interest, to common stock, which doesn’t.
Yet not much news emerged from the sometimes testy discussion. Geithner reiterated the administration’s hope to create a regulator to oversee non-bank institutions like investment firms, much like the Federal Deposit Insurance Corporation currently regulates traditional banks. He also denied the charge that the automakers have been forced to make greater concessions than the finance sector in return for federal help, pointing out that both Freddie Mac and Fannie Mae have seen shifts in management.
Of note, Geithner — himself a creature of Wall Street — conceded that there aren’t nearly enough consumer protections in the credit card, mortgage and other financial products markets, adding that in coming weeks, the administration plans to propose a series of consumer-friendly reforms on all fronts.
“We had systematic failures in consumer protection,” he said. “It’s going to require very substantial changes to fix that.”
Pressed by Elizabeth Warren, the Harvard University law professor who heads the oversight panel, Geithner also reiterated the administration’s support for legislation empowering struggling homeowners to file bankruptcy to prevent foreclosure — an avenue that’s currently prohibited.
The House earlier this year passed legislation allowing bankruptcy judges to reduce — or cramdown — the principal balance and interest rates of mortgage loans to help prevent foreclosures, which are on the rise. But the bill has stalled in the Senate in the face of opposition from most banks.
President Obama has said the cramdown bill is a vital element of the White House foreclosure prevention strategy, providing a legal stick to accompany newly installed financial incentives encouraging the banks to modify mortgages voluntarily.
Asked by Warren if the cramdown bill is “essential,” Geithner offered tepid support for the proposal, conceding that the White House plan alone “is not going to solve all these problems.”
“It’s a difficult balance to get right,” he said.