Obama's Treasury Nominee Faces Senate Grilling

January 21, 2009 - 6:05 AM
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Washington (AP) - With the country facing a worsening economic crisis, President Barack Obama is hoping to win quick approval of his choice of Timothy Geithner to be Treasury secretary, but first Geithner has to explain how he missed paying $34,000 in payroll taxes earlier in the decade.
 
The Senate Finance Committee was scheduled to hear from Geithner on Wednesday with his tax mistake expected to be among a number of questions that panel members will pursue. The hearing is being held against the backdrop of a worsening situation in the banking industry.
 
Shares of major banks plunged on Tuesday as investors feared that an unraveling financial bailout will force the new administration to intervene more deeply into the nation's banking system. Many observers believe the Obama team will have to pump more money into banks or create an entity to take over their toxic assets.
 
Such moves could dramatically increase government government's involvement in banks, potentially threatening shareholders whose holdings could be wiped out in the event of a takeover.
 
Even before the shares of banks such as Citigroup Inc. and Bank of America took a renewed tumble, there was widespread unhappiness among lawmakers about how the Bush administration had handled the $700 billion rescue program that Congress passed on Oct. 3 in response to the nation's most severe financial crisis since the Great Depression.
 
Obama's team has signaled that it plans to greatly revise that program with the aim of getting more help to homeowners threatened with foreclosures and also imposing more strings on the billions of dollars that banks are receiving to make sure the money goes to increased lending.
 
Lawmakers are also expected to press Geithner for details on what changes the new president will be willing to accept to a massive $825 billion economic stimulus program that Obama hopes to get through Congress in the next few weeks.
 
Democrats are hoping that the urgency to deal with the country's worsening economic problems will convince lawmakers to confirm Geithner quickly. Finance Committee Chairman Max Baucus, D-Mont., scheduled a committee vote on the nomination for Thursday.
 
Obama's decision to select Geithner was widely seen as an effort by the new administration to hit the ground running in dealing with the country's economic woes.
 
As head of the Federal Reserve Bank's New York regional bank, Geithner, 47, has been a central player in the Bush administration's response to the financial crisis. He helped Henry Paulson, Bush's treasury secretary, and Federal Reserve Chairman Ben Bernanke fashion the government's response.
 
The financial crisis began in August 2007 with heavy bank losses on subprime mortgages and then escalated with ferocity this fall following the government takeover of mortgage giants Fannie Mae and Freddie Mac and the collapse of investment giant Lehman Brothers.
 
The new Obama administration won a significant victory last week when the Senate rebuffed an effort to block release of the second $350 billion from the $700 billion bailout package. Obama's economic team has signaled that it will heed complaints from Congress to make major changes in how the second half of the bailout package is deployed.
 
Hopes to have Geithner confirmed and on the job on Obama's first day in office were dashed when two committee members blocked an effort to hold the confirmation hearing last week following the revelations of Geithner's past tax problems. As treasury secretary, Geithner would head the Internal Revenue Service.
 
Democrats are insisting that the country's financial problems are too serious to delay the confirmation for what they termed an honest mistake on Geithner's part in the failure to file taxes.
 
"There is no one more suited for this job by way of intelligence, experience, inclination and temperament," Sen. Charles Schumer, a member of the finance panel, said Tuesday. "He has come clean on the tax issue and no one has alleged any intentional wrongdoing."
 
Obama last week called Geithner's tax problems an embarrassment but an "innocent mistake."
 
Geithner failed to pay $34,000 in self-employment taxes from 2001 to 2004 for money he earned while he worked at the International Monetary Fund. He paid some of the taxes in 2006 after an audit discovered the discrepancy for the years 2003 and 2004. But it wasn't until two years later, days before Obama tapped him to head Treasury last November -- that Geithner paid back taxes he owed for the years 2001 and 2002.
 
He did so after Obama's transition team found that Geithner had made the same tax mistake his first two years at the IMF as the one the IRS found he made during his last two years at the international lending agency.
 
While many senators expressed the view that the tax problem was not large enough to derail Geithner's nomination, the issue has become fodder for late-night television comedians and tax problems have helped sink Cabinet nominees in previous administrations.