UPDATE 2-US’ Geithner: Banks must pay fully for bailout

* Return to recession a risk if cut deficit too quickly

* Geithner says he wrote strong-dollar policy in 1995

* Bipartisan bid needed for real deficit slashing
(Recasts, adds details, quotes)

By Glenn Somerville

WASHINGTON, Feb 2 (BestGrowthStock) – The Obama administration is
prepared to impose fees on financial firms for as long as
necessary to ensure that every cent spent on bailing out banks
is repaid, U.S. Treasury Secretary Timothy Geithner said on
Tuesday.

A proposed Financial Crisis Responsibility fee that is
projected to raise $90 billion over 10 years could be extended
if the cost of the bailout exceeds that amount, Geithner said
in testimony before the Senate Finance Committee.

“The fee can and will be extended until every penny of
taxpayer assistance to the financial system has been repaid and
the cost of the rescue to taxpayers is zero,” Geithner said.

He told the committee that soaring budget deficits must be
wrestled down to protect the country’s economic future, but
warned that doing so too quickly would risk a return to
recession.

“We must strike precisely the correct balance with the job-
and growth-spurring measures required to assure recovery,”
Geithner said as he testified about the Obama administration’s
$3.8 trillion fiscal 2011 budget proposals. “If we fail to do
so, we risk driving the economy back into recession…and
making it even harder to fix our problems.”

Geithner laid most of the blame for the country’s woes,
including this year’s projected $1.56 trillion deficit, on the
former Bush administration.

“On the day that President Obama took office, the budget
deficit stood at $1.3 trillion — 9.2 percent of GDP — and the
projected 10-year deficits for the following 10 years were $8
trillion,” Geithner said.

“These huge deficits are the result of the prior
administration’s decision to enact large tax cuts and a
prescription drug bill without paying for them,” he said.

The current deficit trends, which will see the deficit hit
10.6 percent of gross domestic product this year, are not
sustainable, Geithner said, while again stressing the need to
deal with the deficit gradually.

At one point, Geithner was pushed to say whether he thought
ever-rising totals of U.S. debt were harming the dollar’s value
and asked if he even believed in a strong dollar.

“Of course I (do),” he replied sharply. “In fact, that
particular phrase and commitment of policy was first written in
my office in 1995.”

Geithner had long service in the Treasury Department in
prior administrations, working his way through the ranks from
1988-2001 before moving on to the International Monetary Fund
and later becoming the president of the New York Federal
Reserve Bank. He took over as Treasury secretary at President
Barack Obama’s request a year ago.

Geithner appealed for a bipartisan effort to help get
economic growth onto a sounder track that would enable the
private sector to create more jobs.

“We cannot afford an economic expansion like that of the
past decade when…jobs grew more slowly than during any
previous recovery…and much of our growth was built on the
sands of a real estate and financial boom,” he said.

He said the Obama administration supports setting up a
bipartisan fiscal commission to explore ways to tackle oversize
deficits, an idea that Republicans already have spurned.

Stock Market Investing

(Editing by Leslie Adler)

UPDATE 2-US’ Geithner: Banks must pay fully for bailout