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The Obama administration isn’t “anywhere near to saying mission accomplished” on the financial crisis that gripped the country a year ago, Treasury Secretary Tim Geithner said during a town hall on CNBC Thursday night.
The hour-long event touched on everything from bailouts to taxes to China, but Geithner repeatedly voiced the administration’s belief that Wall Street needs new rules to prevent future crises.
“People should be angry,” Geithner said of the bailouts, which he said were necessary to prevent more economic damage and suffering but fundamentally unfair. “People should be deeply angry and frustrated, and that’s why it’s so important that we find the will as a country to fix this, not just to get growth back.”
The town hall, which looked more like an annual corporate meeting than the gatherings made famous over the August recess, was the first of several media events the administration has planned to mark the one-year anniversary of the collapse of Lehman Brothers investment bank, which entered bankruptcy on Sept. 15, 2008.
On Monday, President Barack Obama will give what the White House billed as a “major” speech on the financial crisis in New York City. The president’s remarks, like Geithner’s town hall, will address both the measures taken to halt the current crisis and the steps the administration believes necessary to avert future crises.
Geithner tried to remind his audience of just how bad the economic situation looked this time last year.
“We were at the edge of the abyss. For the first time in really a century we were at the edge of really a classic run on the financial system,” he said. “The rivets were close to coming off the submarine.”
“We can never let that happen again,” he added.
He defended the bailouts and other steps taken by the federal government since, though he did say that before the fall of Lehman Brothers, officials underestimated the crisis and thus waited too long to act, as is the case in most financial crises.
The economy is starting to grow, thanks to the stimulus and the steps to repair the financial system, which have brought borrowing costs down, Geithner said. But the administration won’t feel satisfied until people feel confident they can find jobs, keep their homes and put their children through college, he said.
“That’s the ultimate test of what we’re trying to do.”
On the topic of writing new rules for Wall Street, Geithner stayed well out of the weeds of the legislation being written on Capitol Hill, stressing only the need for stronger rules of the road that better constrain risk-taking by financial firms.
One audience member asked how firms should reform compensation practices, an issue that generated the most e-mailed questions, according to CNBC host Erin Burnett.
Geithner said he’s seen some initial signs of improvements among firms, but “it’s not really something you can leave to the market.” Overtime, compensation without outside constraints will push firms to shape compensation to retain talent and compete with other firms, rather than tie to performance, he said.
Long-term bonus guarantees can’t be acceptable, he said, arguing compensation should come largely in the form of equity in a firm that vests over time and is at risk should returns not materialize.
Americans don’t begrudge people who do well to be paid well, Geithner said. But they “will not accept rewarding failure or insulating people from the consequences of making bad judgments that can threaten the economy as a whole.”