Treasury Secretary Timothy Geithner said Thursday the financial crisis could have been “less severe” if the government had moved faster to contain the damage, The Associated Press reports.
“I do not believe we were powerless,” Geithner told a special panel investigating the roots of the crisis. “I would say that if the government of the United States had moved more quickly to put in place better-designed constraints on risk-taking … then this would have been less severe.”
The government “didn’t move quickly enough and forcefully enough to try to contain the damage,” he said.
Geithner said the lack of authority for regulators to restrain financial risk was a fundamental cause of the 2008 crisis.
Financial overhaul legislation now before Congress would close gaps to give regulators needed powers to curb risk-taking by firms operating outside traditional rules, he said. Regulators didn’t know before the crisis hit how that “shadow” banking system could shake the foundations of the economy, Geithner said.
New rules for financial institutions such as requiring them to hold larger capital cushions are needed, Geithner said, “because we don’t know where the next shock is going to come from.”
Geithner testified at a hearing of the Financial Crisis Inquiry Commission, which is investigating the roots of the crisis that plunged the country into the most severe recession since the 1930s and brought losses of jobs and homes for millions of Americans.
Geithner praised a vote by the Senate on Thursday to protect taxpayers from losses in the failures of large financial institutions. But he also warned against affording exemptions in the legislation from new rules for certain types of financial activities. “We have to create a strong set of rules that no institution can escape,” he said.
Geither spoke after his predecessor in the Bush administration, Henry Paulson, cautioned against overreaching on the overhaul legislation now being debated in the Senate. That could stifle innovation in the markets, Paulson warned.
