WASHINGTON — Despite persistently high unemployment, Treasury Secretary Timothy Geithner said Friday the Obama administration's economic stimulus plan is on the "expected path."
"There's been substantial improvements in arresting what was the worst recession globally we've seen in generations," Geithner told lawmakers Friday.
Geithner's remarks came amid waning public support for President Barack Obama's economic policies. Republican critics say the rising unemployment rate is proof that the $787 billion stimulus has not helped reverse the effects of the recession.
"I was just wondering, where do you think your plan went wrong?" asked Rep. Bill Posey, R-Fla.
About 2 million jobs have been lost since Congress passed Obama's stimulus package in February. Unemployment now stands at 9.5 percent, the highest in 26 years. Some Obama allies have been calling for Congress to pass a second stimulus package.
Geithner said the rate of decline in the economy has slowed, consumer confidence has improved, the financial system is healing, and concern about a financial meltdown has receded.
"Those are critically important signs of initial progress," Geithner said.
Geithner said joblessness is an inescapable element of a recession and that unemployment continues to rise even as an economy begins to improve. Without the stimulus, he said, more jobs would be lost.
Rep. Michael Rogers, R-Ala., challenged Geithner's assertion that business and consumer confidence was improving.
"People are scared to death," he said.
Geithner countered that the recession was a long time in the making and that recovery will take time as well.
"We do not yet have an economy that's growing again," he said, "and I think it is likely it will take a while to grow out of."
Geithner's defense, before a joint hearing of the House financial services and agriculture committees, came in the midst of his call for greater government control over the generally unregulated but complex derivatives market, which he said contributed to the financial crisis.
"Establishing a comprehensive framework of oversight is crucial," Geithner said in his opening remarks to a joint hearing by the House agriculture and financial services committees.
Despite apprehension among Republicans, the effort to add government restrictions to these more freewheeling financial instruments has support within the Democratic-controlled Congress.
Indeed, Financial Services Committee Chairman Barney Frank is planning derivatives provisions that that are even stricter than what the administration is proposing.
Derivatives are financial instruments whose value derives from something else, such as a mortgage-backed security or a commodity like oil. The allure of the over-the-counter derivative, as opposed to those swapped on exchanges, is that it can be individually negotiated and tailored to meet the specific needs of the buyer.
Under the administration's plan, so-called standardized derivative contracts would be traded on regulated exchanges or trading platforms. Dealers would be regulated, and participants would have to meet capital requirements to prevent over-leveraging. Banks and other parties would still be allowed to enter into customized contracts outside regulated exchanges, under the Obama plan, but the transactions would have to meet more reporting requirements.
Frank, in an interview with MSNBC after the hearing, said he would further limit the ability of businesses to enter into individualized derivative contracts.
"We will specifically be requiring that in almost every case derivatives go on an exchange ... or a clearinghouse, that there not be these individualized deals," he said. "And if people are going to make individualized deals, they're going to have to have a lot more capital behind it. "
Frank also said he would call for a ban on so-called naked credit default swaps, a type of derivative where buyers have no risk of exposure.
Some Democrats have called for fewer customized derivatives contracts and a few have urged that some derivatives, such as credit default swaps, be banned.
The administration's proposal, part of a broader overhaul package, has opposition from much of the financial industry, which says it would raise costs and squash innovation. The industry insists any legislation be flexible enough to permit businesses to tailor contracts to meet their specific needs and not standardize all derivative contracts.
Lawmakers have also questioned Obama's proposal to give more power to the Federal Reserve.
On Friday, 17 members of the House Financial Services Committee, including three Democrats, sent Obama a letter asking him not to expand the Fed's authority until it is known whether Fed Chairman Ben Bernanke pressured Bank of America Corp. to acquire Merrill Lynch.