U.S. Treasury Secretary Timothy Geithner said on Monday that borrowing costs were falling as credit markets gradually thaw, but warned a painful period lies ahead for American consumers.
Answering questions at a luncheon sponsored by Newsweek magazine, Geithner said unemployment likely will keep rising for some time as the Obama administration tries to find a way to wrench the economy out of recession.
We're not going to have a steady, even process of repair. It's going to be bumpy, still feel fragile for a while, he said. Even as growth starts to turn positive, which will happen...it's not going to feel better for a long time for millions of Americans.
Since taking over Treasury in January, Geithner has been immersed in the effort to administer a government bailout for the severely stressed financial sector. He said proposals for a broad regulatory overhaul will be made public within a few weeks and suggested it will be sweeping.
We have an incredibly archaic, segmented, complex oversight regime across our system, he said. It did not prevent huge amounts of risk building up in pockets of the system...and we're going to have to change a lot of aspects of the regulatory system to reduce the risks.
PAY FANS ANGER
Geithner said huge paychecks for Wall Street figures during the boom years of the 1990s and early 2000s angered many Americans and said compensation needs to be changed, though he rejected the idea of setting upper limits on executive pay for companies receiving taxpayer-financed bailouts.
I don't think our government should set caps on compensation, Geithner said. What I think we need to do is make sure we set in place some broad constraints on the incentives (that) compensation systems create.
He said the financial crisis was fueled by excessive risk-taking in search of short-term pay incentives but there were means for controlling that.
Through supervisory standards and through the kind of disclosure requirements the SEC (Securities and Exchange Commission) can put in place I think we can bring about broader reforms to compensation...that will make it much less likely that people will get paid to take large amounts of short-term risk at the expense of their firms, Geithner said.
Geithner defended himself against published charges that Treasury was moving slowly on policy decisions because many key positions were unfilled and lines of managements were blurred. There is no deputy Treasury secretary, no nominee for under secretary for domestic finance and the candidate for under secretary for international affairs is not yet confirmed.
I actually think we're doing quite well in terms of speed, quality of policy. he said, insisting that Treasury has moved swiftly on an extraordinarily complex set of programs to deal with the housing crisis and financial system turmoil.
Geithner said there is pressure to act now to overhaul financial rules while memories are fresh about the upheaval that has been caused by reckless lending and risk-taking and chances are best for shaping attitudes.
I think the American people want to see us moving to change things, not just waiting, he said, adding that means there may be some areas in which we're going to err on the side of constraining risk rather than letting it get around the new rules.
(additional reporting by David Lawder, Mark Felsenthal and Corbett B. Daly, Editing by Chizu Nomiyama)
(Reporting by Glenn Somerville)