The Obama administration is mulling a new agency to better protect consumers from practices like those that led to the current financial crisis, US Treasury Secretary Timothy Geithner said on Thursday. Testifying before a House of Representatives Appropriations subcommittee, Geithner said a broad set of regulatory reform proposals should be ready to unveil in a few weeks, and a new entity to protect consumers of financial products could be part of that effort.
"We are examining the merits of setting up a new independent commission or agency to help provide stronger rules to protect consumers and better enforcement of those rules," he said in response to questions. "We are not at the point yet ... where we've made a judgement on what precise structure (or) form this should take, how broad its authority should be, how it relates to existing authorities that exist across the agencies now," he added.
Geithner said government efforts to bolster the financial system were bringing "immediate stability," and it was now time to turn attention to badly needed regulatory reforms to create a system that would be less vulnerable to meltdown. "This country has lived for some time with a very complicated, very segmented, archaic framework of oversight over our financial system, and that's one reason ... why this crisis was so severe, one reason why consumer protections were evaded so easily," Geithner said, adding that must change.
Reckless lending by banks, including so-called "liars' loans" for under-qualified homebuyers without requiring proof of income or sometimes even employment, is widely blamed for helping fuel a housing boom whose collapse led the United States into a deep recession.
Lawmakers have shown strong interest in adopting a consumer-oriented approach to rewriting rules for banks and the financial markets. Capitol Hill aides said earlier this week some type of financial product safety commission was moving to the forefront of fast-moving efforts to overhaul regulation.
In his testimony, which was intended to focus on the Treasury's operating budget, Geithner said the administration is seeking to strike "the delicate balance between intervention and allowing market participants latitude to operate" as it tries to restore the economy back to growth. Asked about the fiscal woes faced by California, the country's largest state economy, Geithner said the Treasury was not able to tap a $700 billion bailout fund approved by Congress last year to help the state. "We do not believe that (the fund) as currently legislated provides a viable solution to this specific challenge," he said, adding that Treasury was not legally able to guarantee new debt issues.
He defended the administration's interventions in the financial sector, but conceded that once recovery is under way, it will have to move swiftly to ratchet down huge and growing budget deficits that are being incurred as bailout spending soars. "We must get our fiscal house in order or risk having government borrowing crowd out productive private investment," Geithner said.