Republican leaders cautioned that some of the nation’s major financial institutions may have to close to help bring the nation out of its recession, and President Obama’s budget chief said Sunday that the national economy is fundamentally weak.
Meanwhile, the White House nominated three aides to work under Treasury Secretary Timothy F. Geithner, who has taken a lead role in crafting and delivering the Obama administration’s financial policy but has also been criticized for the slow pace of filling key vacancies in his agency.
Republican congressional leaders Sunday said that the continuous Wall Street bailouts are prolonging the lives of megabanks and large lenders which should have died along with smaller financial companies.
“Close them down, get them out of business,” Sen. Richard C. Shelby, Alabama Republican, said on ABC’s “This Week.” “If they’re dead, they ought to be buried. We bury the small banks; we’ve got to bury some big ones and send a strong message to the market.”
“This Week” host George Stephanopoulos asked Mr. Shelby whether he was referring to megabank Citigroup, which stock share has fallen to about $1 from a high of $55 three years ago.
“Citi’s always been a problem child,” he said.
Sen. John McCain, Arizona Republican, said the Obama White House has been too vague in stating its financial position and needs to let some banks fail.
“I don’t think they’ve made the tough decisions. Some of these banks have to fail,” he said on “Fox News Sunday.” “AIG, when we started bailing them out, I said, ‘We’ve got to let it fail.’ You can’t have zombie banks like the Japanese had.”
A “zombie bank” is a bank with no money that continues operating, usually with government aid. Citigroup has been given $45 billion by the federal government so far, although the bank’s net worth was $5 billion at the close of the stock exchange Friday.
Senate Democrats defended Wall Street aid, saying the nation’s largest financial institutions, plus Detroit’s Big Three automakers, are too big to fail and their collapse would tear apart the nation’s economy for everyone.
“Some of these institutions - and you can put some of the big three automotive companies in the same category - if they were to go down, they take collateral damage,” Sen. Evan Bayh, Indiana Democrat, said on “This Week.” “Hundreds of thousands of blue-collar working men and women, other smaller financial institutions who were not involved in these bad decision-makings - they’d all pay the price, too.”
But House Minority Leader John A. Boehner, Ohio Republican, suggested that General Motors Corp. should try alternatives before returning to ask the government for more money beyond the $13.4 billion it already has loaned GM.
“I think they could survive bankruptcy,” Mr. Boehner said Sunday on CBS’ “Face the Nation.” “Hopefully, they’ll be able to come to an agreement with all of their stakeholders before they get to that point. You know, the stakeholders or the stockholders, the bondholders and the employees. And at the end of the day, all of them are going to have to come to an agreement to help this company survive.”
Last fall, the Republican leadership backed President Bush’s establishment of the $700 billion Troubled Asset Relief Program (TARP), though with much dissent from the rank and file, particularly in the House.
But the party has become more critical of bailouts under Mr. Obama, although Republicans have not succeeded in blocking any measures.
Mr. Geithner delivered broad outlines for a plan to spend the rest of the TARP money last month, with plans to buy up “toxic” bank assets and help homeowners renegotiate mortgages they can’t afford.
But the Treasury secretary was short on details and critics have questioned whether the Obama White House has a specific, workable plan in mind.
“Well, I think fundamentally, the economy is weak,” Peter R. Orszag, director of the Office of Management and Budget, said Sunday on CBS’ “Face the Nation,” though he blamed the George W. Bush administration for that weakness.
“Job losses began in January of 2008. The stock market started declining October 2007. This has been, you know, eight years in the making, and again, it’s going to take some time to work our way out of it,” he said.
Stock prices have continued to decline at sharp rates and unemployment figures for February reached 8.1 percent nationally - up from 7.6 percent in January and 4.8 percent last year.
Mr. Obama cautioned last month that the national economy is likely to worsen before it improves - drawing a rebuke from former President Bill Clinton, who said his Democratic colleague needed to be more optimistic. The president also took criticism last week for dismissing the cratering stock market - it has lost nearly one-third of its value since his election - as “day-to-day gyrations … sort of like a tracking poll in politics, it bobs up and down, day to day.”
The federal government has intervened extensively to rescue failing financial institutions over the past six months, authorizing $700 billion to bail out troubled lending institutions, spending more than $150 billion on the giant American International Group (AIG), and acquiring significant stock shares in several major banks.
Among criticisms of the administration’s early attempts to begin economic healing, particularly in the wake of Thursday’s withdrawals of Annette Nazareth and Caroline Atkinson from consideration for top Treasury posts, it has been noted that the department does not have a single deputy or assistant secretary in place. Thus nobody other than Mr. Geithner authorized to make decisions or speak for the department in negotiations.
On Sunday, Mr. Obama moved to beef up Mr. Geithner’s supporting team, nominating David S. Cohen to be assistant secretary for terrorist financing, Alan B. Krueger as assistant secretary for economic policy, and Kim N. Wallace to be assistant secretary for legislative affairs.
All three currently serve as senior advisers to Mr. Geithner and are subject to Senate confirmation.