Video - Tim Geithner before House Financial Services - Mar. 1, 2011
Watch the hands. Geithner lets down his guard at Fannie hearing, and out comes the truth on bailouts. Clip starts automatically at 3:36
- "As you know, the history of financial crises is largely a history of banks and real estate together. And the government ultimately is there. It's just behind the banks with this implicit support that they don't charge for. It still leaves the taxpayer expected...I mean, exposed to loss."
A couple of weeks ago, Treasury presented Congress with three possible options for reforming the mortgage market and for getting rid of Fannie and Freddie. Treasury's "Option 2" and "Option 3" both retain a large degree of government support for housing. Treasury's "Option 1," however, creates a mostly private mortgage market with only limited support from the FHA for low-income borrowers.
In this clip, Geithner has just been asked which of the three models he prefers for the future of Fannie and Freddie. He has already made it clear that he does not support Option 1, which would most likely have a negative effect on home prices and thus hurt bank balance sheets. That's to be expected - we know that Geithner can be counted on to support the banks at every turn.
But what he actually said was totally unexpected. Watch him as he slips and tells Congress that even without an explicit government guarantee for mortgages, the government will come in to protect the banks at taxpayer expense anyway. This is no great revelation - everyone knows that to be the case. But for months the administration's line has been that Dodd-Frank solved Too Big To Fail and that there will never again be a taxpayer bailout of the banks. Just watch, it's pretty obvious Geithner knows he made a gaffe, because he gets audibly tongue-tied and then swallows really hard mid-sentence before regaining his composure.
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Here's the full 5-minute exchange...
Further reading...
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