WASHINGTON — U.S. Treasury secretary nominee Timothy Geithner said President Obama will send Congress a sweeping plan in the next few weeks to shore up banks and unlock credit markets, warning it will require action on a scale "not seen in generations" to address the worsening economic crisis.
Geithner and former Federal Reserve chairman Paul Volcker, now an Obama adviser, told the Senate Finance Committee that Washington must take bold steps to shore up credit markets, in addition to Obama's roughly $800 billion economic stimulus plan, now moving through Congress.
"We're at the beginning of this process of repairing the system, not close to the end of that process. And it is going to require much more substantial action on a very … dramatic scale," said Geithner, president of the Federal Reserve Bank of New York. "The ultimate costs of this crisis will be greater if we do not act with sufficient strength now."
Over time, the Treasury and Federal Reserve will have to commit several trillion dollars through direct spending, loans and guarantee programs, Volcker said.
The Obama administration is moving on several fronts to combat a deepening recession and credit crisis. Obama is pushing Congress for $800 billion in tax cuts and new spending. The Senate last week, at Obama's urging, released the final $350 billion of a $700 billion economic rescue law passed last year.
Obama officials plan to use at least $50 billion of the $350 billion to tackle record home foreclosures. In addition, Geithner said officials are working on a plan to underpin struggling banks, and provide much more substantial support to credit markets to free up student loans, home and commercial real estate mortgages, auto loans and other products.
The Fed last year outlined a plan to backstop college, auto and credit card lending, in part with funds from the $700 billion law. Geithner's comments suggest a wider reach. The new president has not settled on a final proposal, with officials debating options such as setting up a so-called bad bank to buy troubled assets from lenders.
Geithner promised to be open and comprehensive. He and Volcker made it clear there are tough choices ahead.
"We are in a serious recession with no end clearly in sight," Volcker said, calling it "the mother of all financial crises."
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