George Stephanopoulos Hits Geithner From the Left on Financial Regulation: Break Up Big Banks?

The ABC journalist did question Geithner about future bailouts and whether the American public could be guaranteed there wouldn't be more. But, he mostly stuck to highlighting liberal worries, such as a new plan to allow trading firms to create a box office futures market.

Before asking if this should be "banned," Stephanopoulos chided, "But even as Washington limits these risky investments, Wall Street is trying to create new ones. The latest, letting people bet on box office results. A futures market in movies. Do you think that's a good idea?"

A transcript of the April 22 segment, which aired at 7:08am EDT, follows:

GEORGE STEPHANOPOULOS: I had the chance to talk to about all of this when I spoke with Treasury Secretary Tim Geithner yesterday afternoon. We sat down just before he met with top General Motors executives to get back their government bailout money. So, Geithner was in a pretty good mood. He was also optimistic about getting Democrats and Republicans to agree on a financial reform package, which he believes will end bailouts paid for all of us. That's where we began.

TIM GEITHNER (Treasury Secretary): I think we will. Yeah. I'm spending a lot of time up there, both sides of the aisle, a lot of time with Republicans, too. People I talk to, want to be for a strong bill. You can't be against reform, George, given what happened. But what matters is, are they going to be for strong reforms? And based on what I've heard and what they tell me, they're for strong reforms.

STEPHANOPOULOS: There's a lot of people who are questioning whether what you're pushing for is strong enough. I mean, you have got a situation now where the six biggest banks in the country have assets equal to more than 60 percent of GDP. Why shouldn't those big banks be broken up?

GEITHNER: This is a very strong package of reforms. It's going to set limits we never had in place on risk-taking across the system. Limits on how large firms can be and how risky they can be. You know, we've been doing this for 14 months. There's enormous resistance, still, across the U.S. financial community, and by large institutions around the world to what we're trying to work through.

STEPHANOPOULOS: Yet, they're fighting it at a time when the banks are just making staggering profits. I mean, Goldman Sachs, 27 percent profits. You can't find a business that you make profits at that level. And it's a sure sign, isn't it, that there's not enough competition?

GEITHNER: No, I don't believe that. Bit. I think most of what you're seeing now in the American economy. The economy is really getting stronger. I mean, the economy is growing again. Private investment is expanding. People are starting to spend more. Exports are growing. That's a good sign. That's a healthy sign. But, again we're still living with the financial system that brought us this crisis. And, so, we have a huge obligation, I believe, huge responsibility, now, to make sure we putting in place tough reforms now.

STEPHANOPOULOS: But, why isn't it a good idea to do something about the size of these banks? Are they still too big to fail?

GEITHNER: We agree. Are view is- Absolutely. You're limiting how big they can get and how risky they can get. But in the future, if they mess up and take themselves to the edge of the cliff again, then we want to make sure we can put them out of existence. Dismember them. Break them up, safely without the taxpayer having to bail them out again. That's a very important- That's a critical part of this bill.

STEPHANOPOULOS So, you're confident, if these reforms are put in place and 18 months down the road, we face another situation like Lehman Brothers. Whether it's now Citigroup or JP Morgan, Morgan Stanley, whichever bank, you take your pick, Goldman Sachs, you're confident that the government will not step in and save them?

GEITHNER: Absolutely. Absolutely. That's important for people to understand. You can't run a system in which private investors or their executives can take risk on the expectation the government is going to protect them. That's a recipe for disaster.

STEPHANOPOULOS: But, that's what happened, isn't it?

GEITHNER: That's what happened before. And we're not going to let it happen again.

STEPHANOPOULOS: Let's talk a little bit about Goldman Sachs. The SEC is taking action against Goldman Sachs. Did anyone in the Obama administration, in Treasury, in the White House, in the government, get any heads-up? Nothing?

GEITHNER: Absolutely not. And, again, that could never happen, should never happen. It's a fully independent agency and they give no warnings and no heads-up. And there should be no involvement ever by any person in the executive branch, ever, in those kind of investigations. And I'm confident our system protects against that risk.

STEPHANOPOULOS: And I know you can't talk about the investigation, per se. But how about the underlying issue? These firms are setting up what are synthetic CDOs. Collateralized Debt Obligation. These are just bets. Why should firms who are getting backing for the federal government be allowed to do this at all? We end up paying, don't we?

GEITHNER: Let me do it slightly differently, because, again, I want to be careful. Because there's an important tradition of not commenting of enforcement or their merits. What you need to have a system in which this stuff happens, not in the dark. Where some people can make some money. But it comes at enormous risk to the system as a whole. We bring derivatives out of the dark. Those types of activities happen in broad daylight with full disclosure. And with the cops able to police the stuff more effectively.

STEPHANOPOULOS: I understand that for private firms. When you have got these banks who are getting subsidies from the federal government, why should they be allowed to do this?

GEITHNER: You're exactly right. It is an obligation of government, in some ways this was the failure of the system we had. You know, we had in place for seven years after the Great Depression. But the markets just outgrew it. The obligation of government is to prevent firms from taking risks that could imperil the economy. And to prevent people from taking advantage of their customers.

STEPHANOPOULOS: But even as Washington limits these risky investments, Wall Street is trying to create new ones. The latest, letting people bet on box office results. A futures market in movies. Do you think that's a good idea?

GEITHNER: You know, here's what I think about this, George. The financial sector will be creative and will innovate. It will come up with products in a meet some real need people have. And also come up with products that are designed to help people bet on some basic outcome. That's going to happen. It's a necessary part of running a good financial system. But, those things come with risks. And our job, our obligation, is to make sure that we're reducing those risks. We can contain the damage when those financial innovations go awry. And, again, you need the government better equipped to do a better job earlier, preemptively, to limit the risks that come with the obligation.

STEPHANOPOULOS: So, they shouldn't be banned?

GEITHNER: You can't stop innovation. You can't run a system where you have a bunch of bureaucrats in Washington, trying to figure out what's risky and what's not. Because, the risk is they'll miss it. They'll be too late. Or they'll overdo it. So, the best thing we can do for the country, is to make sure the system just has better protections in place when innovations go a little too far.

STEPHANOPOULOS: Mr. Secretary, thanks very much.

GEITHNER: Nice to see you, George.

STEPHANOPOULOS: Not all senators got the memo from the Treasury Secretary. A key Senate committee did, in fact, vote to ban that movies future market yesterday.

-Scott Whitlock is a news analyst for the Media Research Center. Click here to follow him on Twitter.