WASHINGTON – Treasury Secretary Timothy Geithner said Wednesday that he acted quickly and appropriately to deal with problems in a key global interest rate once he realized the rate-setting process was flawed.
Geithner, who was then head of the Federal Reserve Bank of New York, said during an interview with CNBC that he sent a memo in 2008 to British banking authorities outlining his concerns about possible manipulation of the London interbank offered rate. He also said he alerted U.S. regulators.
“We did the right and necessary things. We did it right and we did it early,” Geithner said.
The LIBOR affects the interest rate on many loans. The process for setting the LIBOR has come under scrutiny since Britain’s Barclays bank admitted two weeks ago that it had submitted false information to keep the rate low. The banks agreed to pay a $453 million fine.
The interview touched on a number of topics, including the weakening U.S. economy.
Geithner said growth is “definitely slower” and the country faces two big risks – the financial crisis in Europe and the looming budget crisis at home. Without congressional agreement, tax increases and deep spending cuts would take effect at year’s end. If that happened, the Congressional Budget Office has warned a recession would occur and 1.25 million fewer jobs would be created in 2013.
Some Democrats have proposed allowing all the Bush-era tax cuts to expire at the end of the year – even those on the middle class – if Republicans refuse to raise taxes on families making more than $250,000 a year.
Geithner said he wouldn’t support the proposal.
On the LIBOR, Geithner said that there would be more enforcement actions to follow but he refused to discuss whether any of the U.S. banks that participate in setting the rate were the target of investigations.
He said that tough enforcement would be “critical to restoring trust and confidence in our financial system.”
Asked why it has taken four years to get the first enforcement case, Geithner said these types of investigations take time.
Geithner said that the British authorities have not fixed all the problems with how the LIBOR is set and that they need to go further in implementing reforms.