Geithner Says Commercial Real Estate Woes Won’t Spark Crisis

Oct. 29 (Bloomberg) -- U.S. Treasury Secretary Timothy Geithner said commercial real estate woes won’t set off a new banking crisis, in remarks to the Economic Club of Chicago.

“I don’t think so,” Geithner said, when asked whether commercial real estate could set off another banking meltdown. “That’s a problem the economy can manage through even though it’s going to be still exceptionally difficult.”

The global economy has accelerated since the worst of the recession and banking crisis last year, Geithner said, noting a U.S. Commerce Department report today showing the economy expanded 3.5 percent in the third quarter.

“You can say now with confidence that the financial system is stable, the economy is stabilized,” Geithner said. “You can see the first signs of growth here and around the world.”

Going forward, the U.S. economy will need to be sustained with private demand without relying on government support, he said. In the meantime, he said, the existing bank rescue and fiscal stimulus programs will help the rebound gain momentum.

“This is going to have to come from private demand, private investment, for it to work and be sustained over time,” Geithner said.

The U.S. needs to bring its budget deficits down “dramatically” because they are too high in the medium term and “unsustainable” in the long run, Geithner said. Investors need confidence that the U.S. that is “going to have the will to do that as the economy recovers,” he said.

Overhaul Bill
Earlier in the day, Geithner testified before a House Financial Services Committee hearing on a draft bill negotiated with the Treasury Department that would police companies for systemic risk and shift the cost of failure to the financial industry.

Geithner said congressional proposals for overseeing big financial firms would give the U.S. government “constrained power” to protect the economy without putting taxpayers at undue risk. The Treasury chief said Congress needs to pass legislation to make the economy less vulnerable to “catastrophic” damage from a major firm’s failure.

Geithner spoke at the Hyatt Regency Chicago, the same hotel where Barack Obama appeared on the weekend he announced his presidential bid in February 2007. The interview was conducted by John Rogers, chairman of Ariel Investments LLC and an Obama campaign fundraiser, before an audience of about 1,400.

As the event got started, Geithner singled out Edward Liddy, who until August had served as interim chief executive officer of American International Group Inc. after its collapse last year, for particular praise. “He just did a great job and I’m very grateful to him,” Geithner said.
Geithner, who was president of the Federal Reserve Bank of New York before joining the Obama administration, said reports of his 100-hour work weeks don’t do justice to his new routine.

“There is no typical day and it’s so much worse than you think,” Geithner said.

To contact the reporters on this story: John McCormick in Chicago at jmccormick16@bloomberg.netRebecca Christie in Washington at rchristie4@bloomberg.net Last

By Rebecca Christie and John McCormick