USA Today / Maria Bartiromo
Today marks the debut of an exclusive column for USA TODAY by Maria Bartiromo. The CNBC anchor will interview top leaders in business and government about issues affecting our finances.
If anyone has a good handle on how long it will take to solve the U.S. unemployment problem, it's Treasury Secretary Timothy Geithner.
In an interview about jobs and the economy, Geithner told me businesses still aren't sure how much demand there will be for their products — and that is what needs to change before they will start hiring again.
With six weeks until the midterm elections, Geithner described the Obama administration's effort to put jobs and the economy at the top of its agenda. And while the housing industry is still in a slump, Geithner said the good news is house prices have been stable for more than a year and homes are much more affordable.
The following are excerpts from my interview with the Treasury secretary, edited for clarity and length.
Q: What do you think it's going to take to get businesses to add new heads to the payroll?
A: It's going to take time, because what businesses need most is to become more confident about how much demand they're going to see for their products.
What you're seeing early in the recovery is that they added back hours before they started to add jobs. But they did start adding jobs more quickly than they did the last two recoveries. They're starting that process of bringing people back on, but they've been doing it very gradually because they want to be very confident that the demand for their products is going to be there. And part of that is going to depend on their judgment that we're most of the way through this adjustment process we're going through and that people are saving more, spending less and borrowing less because they want to reduce the amount of debt they hold relative to income.
Q: There is this big debate right now on whether extending the tax cuts for everybody would be more helpful than keeping out the highest earners in that mix. Do you worry that not extending them for the highest earners will be an issue with what you've just said about ensuring that people spend more, put more money back into the economy?
A: What everybody agrees on is, we should extend what we call the middle-class tax cuts. But they also go to about 97% of small businesses. And if we were to move and Congress were to act now on those fronts, that would provide a lot of certainty. We've also proposed making sure that we keep the top rate on dividends, the capital gains, from rising beyond 20%.
Q: Two years after Lehman declared bankruptcy, where are we now in the state of the banking sector? We have new rules requiring more capital. How would you characterize the state of capital for the banking sector today?
A: The U.S. banking system today is in a dramatically stronger position with much higher levels of capital than they had coming into the crisis and a lot more capital relative to most of their major global competitors. And that's a hugely important accomplishment. The government got a very substantial positive return on the investments we made at the banks. We forced private capital to come into the system much earlier than anybody has ever done in a crisis. And we passed a sweeping set of reforms, not just of our financial system, but we're trying to do that on a global basis with a level playing field.
Q: A lot of people say housing is missing in action in this recovery. About a half a million mortgages have been modified under the government's Making Home Affordable program since it started almost 18 months ago. Foreclosures are still high, about 11 million borrowers are under water, and some economists say prices are likely to fall more when the banks unload the foreclosed properties they've been holding off the market. Do you think the administration's programs to aid the housing markets have been a success?
A: You have to judge these things against the alternatives. And what the president's program did, alongside what the Federal Reserve did, is bring a measure of stability to house prices much more quickly than people thought. If you look at where the market thought house prices would go at the beginning of 2009, people thought they might fall another 30%. And what happened is they stabilized because we were able to bring mortgage interest rates down to very low levels, and that helped slow the pace of erosion.
House prices have been reasonably stable for more than a year. Mortgage interest rates are very low. Housing is much more affordable than it's been in a really long time.
But there's still a huge backlog of foreclosures working their way through the system. Now, we can't reach everybody, and a lot of those foreclosures are people with a jumbo (mortgage), it's a relatively expensive home, it's a second home, it's an investor-owned property or it's a family that can't prove income. We just don't think it's fair to ask the American people to use their money, their hard-earned resources, to try to extend the benefits of these programs to people who ended up just living way beyond their means.
I do not agree with people who think that we should be stepping back from the housing market. That would be a mistake. It would be really unfair to all the innocent victims of this crisis.
Q: The president just proposed additional stimulus, the $50 billion toward infrastructure. Can you talk about this plan? And also what is the likelihood that we are going to see jobs created as a result of infrastructure projects? Where and when would those jobs be created?
A: He's proposing to kick-start a multiyear program to upgrade the basic quality of transportation infrastructure in the country. That's very good for the business community because it will make it easier for them to get their products to market. But it's also very good for job creation, because it helps provide some support in areas where people were most hurt by the crisis.
A lot of the pain of the crisis has been borne by people that were in the construction industry. And so it's a very powerful way to get people back to work. It doesn't happen overnight. As you saw in the Recovery Act, a lot of the money that was put aside for public infrastructure took a long time to get through the pipeline, for projects to get approved, for people to be hired. A lot of that is still working its way through the pipeline. But our unemployment problem is going to take a while to solve.
Q: What about the people who say, "I thought that money was already going to infrastructure in the initial Recovery Act stimulus plan"?
A: The Recovery Act was a mix of tax cuts, almost $300 billion in tax cuts, as well as support for the safety net for people who lost their jobs through extended unemployment benefits and health insurance, as well as money for state and local governments. So infrastructure was just one piece, and a lot of that money is still working its way through the pipeline as states put these resources to work.
Q: How important are China and India and the emerging markets to the growth of the U.S.? Everybody's always talking about growth outside the U.S. and all these vibrant economies. Why does the average American need to understand that story?
A: Those countries are the most populous and the most rapidly growing countries on the planet. They have huge growing needs for a range of things that Americans are uniquely good at producing. We have a huge stake in those markets, and the parts of the economy now that look the strongest — high-tech and a bunch of manufacturing sectors where the recovery started soonest — are strong in part because our companies are so strong in those markets.
Q: So we need to be selling to those markets because they're so populated?
A: It's not just that there's a lot of people who live in those countries but that they're growing very, very rapidly. And as they become more prosperous as countries, they're going to need a lot of things. And we are good at making a lot of things they need, not just airplanes and not just high-technology, but a whole lot of the things that the American economy is uniquely productive at.
Q: Every time I speak to CEOs, I hear a similar complaint — they're worried about higher health care expenses and higher taxes in 2011. That's why they're sitting on cash. Companies are sitting on, what, $1.8 trillion? Why are they being so conservative with their money, and how are you going to change that mentality so they can start creating some jobs that we need?
A: The biggest thing holding back business spending, and this is what all businesses say, is the scars of the crisis. The crisis was such a shock, caused such a huge panic, and people who faced that trauma have been very tentative about putting that capital to work and hiring back the people that they let go. But it's important to recognize, Maria, despite all the concern out there, businesses always want to have lower taxes and they're always going to want less regulation.
Q: Nouriel Roubini, the New York University economist, said there's a 40% chance of a double-dip recession. What do you say to that?
A: I talk to businesses across the country, and I watch very carefully what private forecasters are saying about the growth outcome. Most people attach a very low probability to a double-dip or a second recession.
Of course, there's always some chance that these recoveries that follow financial crises are much tougher, they're much slower, they're much more protracted, they're much more uneven. That's the tragic reality of recoveries that follow financial crises. But, again, I think that our economy is gradually getting stronger.
If anyone has a good handle on how long it will take to solve the U.S. unemployment problem, it's Treasury Secretary Timothy Geithner.
In an interview about jobs and the economy, Geithner told me businesses still aren't sure how much demand there will be for their products — and that is what needs to change before they will start hiring again.
With six weeks until the midterm elections, Geithner described the Obama administration's effort to put jobs and the economy at the top of its agenda. And while the housing industry is still in a slump, Geithner said the good news is house prices have been stable for more than a year and homes are much more affordable.
The following are excerpts from my interview with the Treasury secretary, edited for clarity and length.
Q: What do you think it's going to take to get businesses to add new heads to the payroll?
A: It's going to take time, because what businesses need most is to become more confident about how much demand they're going to see for their products.
What you're seeing early in the recovery is that they added back hours before they started to add jobs. But they did start adding jobs more quickly than they did the last two recoveries. They're starting that process of bringing people back on, but they've been doing it very gradually because they want to be very confident that the demand for their products is going to be there. And part of that is going to depend on their judgment that we're most of the way through this adjustment process we're going through and that people are saving more, spending less and borrowing less because they want to reduce the amount of debt they hold relative to income.
Q: There is this big debate right now on whether extending the tax cuts for everybody would be more helpful than keeping out the highest earners in that mix. Do you worry that not extending them for the highest earners will be an issue with what you've just said about ensuring that people spend more, put more money back into the economy?
A: What everybody agrees on is, we should extend what we call the middle-class tax cuts. But they also go to about 97% of small businesses. And if we were to move and Congress were to act now on those fronts, that would provide a lot of certainty. We've also proposed making sure that we keep the top rate on dividends, the capital gains, from rising beyond 20%.
Q: Two years after Lehman declared bankruptcy, where are we now in the state of the banking sector? We have new rules requiring more capital. How would you characterize the state of capital for the banking sector today?
A: The U.S. banking system today is in a dramatically stronger position with much higher levels of capital than they had coming into the crisis and a lot more capital relative to most of their major global competitors. And that's a hugely important accomplishment. The government got a very substantial positive return on the investments we made at the banks. We forced private capital to come into the system much earlier than anybody has ever done in a crisis. And we passed a sweeping set of reforms, not just of our financial system, but we're trying to do that on a global basis with a level playing field.
Q: A lot of people say housing is missing in action in this recovery. About a half a million mortgages have been modified under the government's Making Home Affordable program since it started almost 18 months ago. Foreclosures are still high, about 11 million borrowers are under water, and some economists say prices are likely to fall more when the banks unload the foreclosed properties they've been holding off the market. Do you think the administration's programs to aid the housing markets have been a success?
A: You have to judge these things against the alternatives. And what the president's program did, alongside what the Federal Reserve did, is bring a measure of stability to house prices much more quickly than people thought. If you look at where the market thought house prices would go at the beginning of 2009, people thought they might fall another 30%. And what happened is they stabilized because we were able to bring mortgage interest rates down to very low levels, and that helped slow the pace of erosion.
House prices have been reasonably stable for more than a year. Mortgage interest rates are very low. Housing is much more affordable than it's been in a really long time.
But there's still a huge backlog of foreclosures working their way through the system. Now, we can't reach everybody, and a lot of those foreclosures are people with a jumbo (mortgage), it's a relatively expensive home, it's a second home, it's an investor-owned property or it's a family that can't prove income. We just don't think it's fair to ask the American people to use their money, their hard-earned resources, to try to extend the benefits of these programs to people who ended up just living way beyond their means.
I do not agree with people who think that we should be stepping back from the housing market. That would be a mistake. It would be really unfair to all the innocent victims of this crisis.
Q: The president just proposed additional stimulus, the $50 billion toward infrastructure. Can you talk about this plan? And also what is the likelihood that we are going to see jobs created as a result of infrastructure projects? Where and when would those jobs be created?
A: He's proposing to kick-start a multiyear program to upgrade the basic quality of transportation infrastructure in the country. That's very good for the business community because it will make it easier for them to get their products to market. But it's also very good for job creation, because it helps provide some support in areas where people were most hurt by the crisis.
A lot of the pain of the crisis has been borne by people that were in the construction industry. And so it's a very powerful way to get people back to work. It doesn't happen overnight. As you saw in the Recovery Act, a lot of the money that was put aside for public infrastructure took a long time to get through the pipeline, for projects to get approved, for people to be hired. A lot of that is still working its way through the pipeline. But our unemployment problem is going to take a while to solve.
Q: What about the people who say, "I thought that money was already going to infrastructure in the initial Recovery Act stimulus plan"?
A: The Recovery Act was a mix of tax cuts, almost $300 billion in tax cuts, as well as support for the safety net for people who lost their jobs through extended unemployment benefits and health insurance, as well as money for state and local governments. So infrastructure was just one piece, and a lot of that money is still working its way through the pipeline as states put these resources to work.
Q: How important are China and India and the emerging markets to the growth of the U.S.? Everybody's always talking about growth outside the U.S. and all these vibrant economies. Why does the average American need to understand that story?
A: Those countries are the most populous and the most rapidly growing countries on the planet. They have huge growing needs for a range of things that Americans are uniquely good at producing. We have a huge stake in those markets, and the parts of the economy now that look the strongest — high-tech and a bunch of manufacturing sectors where the recovery started soonest — are strong in part because our companies are so strong in those markets.
Q: So we need to be selling to those markets because they're so populated?
A: It's not just that there's a lot of people who live in those countries but that they're growing very, very rapidly. And as they become more prosperous as countries, they're going to need a lot of things. And we are good at making a lot of things they need, not just airplanes and not just high-technology, but a whole lot of the things that the American economy is uniquely productive at.
Q: Every time I speak to CEOs, I hear a similar complaint — they're worried about higher health care expenses and higher taxes in 2011. That's why they're sitting on cash. Companies are sitting on, what, $1.8 trillion? Why are they being so conservative with their money, and how are you going to change that mentality so they can start creating some jobs that we need?
A: The biggest thing holding back business spending, and this is what all businesses say, is the scars of the crisis. The crisis was such a shock, caused such a huge panic, and people who faced that trauma have been very tentative about putting that capital to work and hiring back the people that they let go. But it's important to recognize, Maria, despite all the concern out there, businesses always want to have lower taxes and they're always going to want less regulation.
Q: Nouriel Roubini, the New York University economist, said there's a 40% chance of a double-dip recession. What do you say to that?
A: I talk to businesses across the country, and I watch very carefully what private forecasters are saying about the growth outcome. Most people attach a very low probability to a double-dip or a second recession.
Of course, there's always some chance that these recoveries that follow financial crises are much tougher, they're much slower, they're much more protracted, they're much more uneven. That's the tragic reality of recoveries that follow financial crises. But, again, I think that our economy is gradually getting stronger.
