Geithner's Interview Oct. 14, 2011

WHEN: TODAY, FRIDAY, OCTOBER 14TH AT 9AM ET

WHERE: CNBC'S "[b]SQUAWK ON THE STREET[/b]"

Following is the unofficial transcript of a CNBC EXCLUSIVE interview with Treasury Secretary Timothy Geithner today, Friday, October 14th at 9AM ET on CNBC's "Squawk on the Street." All references must be sourced to CNBC.

[b]Treasury Secretary Geithner[/b]

[b]STEVE LIESMAN[/b]: Melissa, thanks very much. On the eve of-- hours before the G20-- finance ministers sit down I'm here with Treasury Secretary Tim Geithner. Mr. Secretary, thank you for joining us.

TIM GEITHNER: Good to see you, Steve.

STEVE LIESMAN: So Europe has so far proven itself incapable of taking the big steps to calm its markets and to get its financial crisis under control. Is there any reason for optimism right now that the G20 can play a role in helping Europe get its act together?

TIM GEITHNER: Well, Europe's clearly moving. If you look at what they've been saying-- they're talking about a much more comprehensive package, much more forceful package of measures, a backstop for the sovereign governments that are under the most pressure, preemptive recapitalization of banks. Those are the kind of things that we need to-- they need to do. Course the hard part's still ahead, which is design a strategy that meets those basic objectives.

STEVE LIESMAN: Is leverage going to be part of the language that comes out, leveraging the EFSF?

TIM GEITHNER: Well, you know, basic rule of-- financial crises management is you want to make sure that you have a level of resources that are larger than the potential needs you face. And if markets see that then they'll have the incentive to continue to lend, invest-- take exposure to those countries. And so what they're trying to-- Europeans are trying to do is to find ways to increase-- to dramatically increase the effective financial capacity of their fund.

STEVE LIESMAN: How big does that bazooka, so to speak, have to be? Canadian Governor Mark Carney said before he left for-- for Paris that he was looking for $1 trillion euros or more. Do you have a number?

TIM GEITHNER: No lots of ways to assess that. Again what the-- what you need is the clear commitment by the governments that they'll do what's necessary to hold us together and that they'll put as much resources behind this as is necessary. And you know, that's what they're trying to do.

STEVE LIESMAN: And you think it's gonna happen?

TIM GEITHNER: Oh, I think there's no alternative for Europe. And-- you've heard the president of France and the chancellor of Germany-- state very, very clearly that next week and in advance of the summit in Cannes(France will host the 2011 G20 Summit in Cannes, November 3-4.) of the G20 leaders that they're gonna move to put in place a more comprehensive strategy.

STEVE LIESMAN: Is there a financial role for the United States in assisting Europe either directly or through the IMF?

TIM GEITHNER: Through the IMF, of course-- we're already playing a very major role. And we're happy to see the IMF continue to play that role in support of a more forceful, comprehensive strategy where Europe's own resources, very ample resources are deployed at a much more substantial scale.

STEVE LIESMAN: What does that mean in reality? There's this PCL program, I guess, precautionary loan program where the IMF actually put up dollars and is the amount of money in this PCL program sufficient? Would the United States support increasing the side of that fund?

TIM GEITHNER: Lots of ways to do this, and of course we'll look at anything that makes sense. The IMF has very, very substantial uncommitted resources because of the actions we took in '09 and 2010 in the crisis to substantially expand the IMF's financial capacity. So they have very substantial resources that are uncommitted.

And again if Europe has a comprehensive strategy in place that looks like it makes sense and is using the very ample financial resources of Europe, then we're happy to see the IMF play a continuing role as it's been playing in supporting what the Europeans are doing. Why-- why are we doing that? We're doing that because we have a huge interest in Europe getting a head of this and fixing it. And where we can be helpful we'll do that through the IMF.

STEVE LIESMAN: Wouldn't that though put the United States tax payer dollars at risk to help save Europe? Is that the right use of taxpayer funds?

TIM GEITHNER: Yeah, absolutely and-- but-- the IMF-- you know, the U.S. has been a was a founding member of the IMF, one of the early architects to the IMF-- never lost a penny on any of our exposure to the IMF. And that's because of course IMF resources come with very strong conditions and are deployed prudently to help in crises like they've been. But you're seeing IMF do extraordinary productive things over time. That's made the U.S. economy stronger, not weaker over time and in that tradition, which is a bipartisan tradition, we'll continue to look for ways we can help Europe.

STEVE LIESMAN: So I just want to make sure I understand you-- your answer to the other question. You support increase these funds or you're saying IMF funds are currently sufficient?

TIM GEITHNER: As we look at the world today-- the IMF has very substantial uncommitted available financial resources. Of course Europe as a whole has very substantial resources available to help manage their problems. The financial problems they face in Europe, they're complicated to solve, but they're well within the resources that Europe has-- available to Europe and the stronger countries in Europe.

STEVE LIESMAN: Just getting back home here for a second, back in the United States. There's a bit of, I guess, chaos on Wall Street right now with the protestors, the protestors about Wall Street are-- marching around the Stock Exchange. What's your opinion of these of the protestor there? Do you sympathize with 'em or do you think their-- accusations the banks are misplaced?

TIM GEITHNER: Well, I think what you see is a general sense across the country of concern that the U.S. economy's not growing faster, you're not seeing unemployment come down more rapidly, you're not seeing incomes rise more rapidly. And people want to make sure that the government, Washington is acting to make things better now.

And as part of that they want to see us deliver much stronger protections for consumers and investors of the economy as a whole so that as a country we're not vulnerable again to the kind of risk taking and abuse we saw that helped precipitate this crisis.

So what we're focused on is trying to make sure that we are doing everything we can to encourage the Congress of the United States. In this case of course it requires Republicans, can't do this just with Democrats, to get Republicans to take some steps now that can make growth stronger in the United States and tie that to some reforms to bring down our long term deficits. That's what we're focused on.

STEVE LIESMAN: So one of the things that the Occupy Wall Street people point out is that there's been no criminal charges or anything related to what's happened—--in the financial crisis.

TIM GEITHNER: But that's not true. And you've seen very, very dramatic enforcement actions already by the enforcement authorities across the U.S. government. And I'm sure you're gonna see more to come, you should stay tuned for that. But we are taking-- we moved very quickly to put in place a much stronger set of rules of the game across the financial sector.

Now we're set-- facing a lot of resistance to those rules-- but we're gonna make sure that we deliver the promise of those reforms which is a much tougher-- set of rules across the system against risk taking and much stronger protections for consumers.

STEVE LIESMAN: I want to come back to the banking rules in just a second. But this morning at 8:30 we got fairly robust retail sales numbers. Do you feel like the United States is on the verge of recession or in danger of recession?

TIM GEITHNER: The numbers as we see them around the world have been somewhat encouraging over the last couple weeks. You've seen-- steady, gradual-- not strong, but gradual growth across large sections of the U.S. economy. And you've seen a little bit of that outside the United States, too. So the concerns you saw in the summer that the world might be headed into a what-- much weaker growth outcome have receded a bit.

But I think it's very important that we recognize that growth is still too slow here and around the world. And the most important things that have to happen to make sure that the world is growing, not just-- in the United States but globally is for Europe to act to fix its financial crisis, for the U.S. Congress to act to enable-- to put in place some reforms to help strengthen growth.

And we're going to need to see-- see countries around the world adjust their strategy in a way that's going to be more supportive of growth around the world. And one important part of that is to-- is for China to let its exchange rate appreciate more rapidly.

But even though the eyes of the world are on Europe now and even though we're pushing very hard to make sure the U.S. acts now to strengthen growth, we need to see a broader global effort to recognize that growth is much slower than we that it would-- should be, much slower than it should be and countries should be working together to do things that'll help strengthen growth.

STEVE LIESMAN: Let's talk about the China relationship. What's your opinion of the bill in the Senate that would have put tariffs on China?

TIM GEITHNER: Well, as you know we have a big problem with China as-- as a country, an economy. It's-- it's a global problem. And it's partly because they're not letting their exchange rate rise rapidly enough and it's partly because they still have left in place in an economy that's still overwhelmingly dominated by enterprises with very substantial subsidies and preferences for domestic producers. We have a lot of problems with that relationship and we're looking to try to make sure that we can expand the opportunities for U.S. firms.

So we're very supportive of the objectives of that bill. But as I've said before, if that bill were to go to move forward-- Congress would have to address the concerns that have been raised about the consistency of some of the specific aspects of the bill with our international obligations. And the reason why that's important is because, you know, we're open to any way-- any tool-- any piece of legislature that gives us more leverage can be effective in helping advance our interests.

STEVE LIESMAN: Is there—

TIM GEITHNER: To be effective it has to be consistent with our international obligations.

STEVE LIESMAN: Is there a bigger role for China in solving the European crisis?

TIM GEITHNER: I think the most important thing for China to try and-- could-- can do for the world now is to make sure that they're growing, more of their growth comes from domestic demand and they're letting their exchange rate appreciate more rapidly. That would be very good for growth globally, I think it'd be good for China, in China's interest 'cause you're seeing inflation still-- uncomfortably high in China. And I think it's very likely you're gonna see China not just continue to appreciate, but hopefully they let it appreciate more rapidly.

STEVE LIESMAN: What about this plan that was out there that the BRICs would buy some-- form a substantial portion of European bonds?

TIM GEITHNER: Well, you know, my sense from talking to the-- my counterparts around the world is, you know, what they want to see is Europe move. They want to see a more effective, more comprehensive financial strategy from Europe that they're very support of having IMF play a continuing a role. And they want to make it clear because the world has such a big stake in Europe solving this that we'll be as helpful as we can.

And- I think all of us have the same view, which is again in support of a broader European strategy that's much more forceful, has much more substantial European resources at-- at stake. We're happy to see the IMF play a continuing role.

STEVE LIESMAN: The thing that was going to be the big news item from this evening before it became all about Europe was this new capital charge that's going to be placed on the bank, on the biggest global banks. I assume that's set to be approved by the finance ministers and central bankers here en route to being approved by the leaders in-- by the-- by the leaders in Cannes. It's been criticized in the United States for-- really putting an added burden on the banks as something that will ultimately-- lead to less lending and less economic growth.

TIM GEITHNER: Well, just to step back for a sec, what we're trying to make sure happens is that the largest financial institutions in the world, the one that posed the most potential risk to our economies going forward-- have more capital, more financial cushions against risk. And so these new global capital standards are in service to that broad objective.

There are two things that are really important for that to happen for that to be done well and carefully. One is we need to have a lot more confidence than we do today, that there's going to be a level playing field in the application of those rules across the major financial centers. 'Cause we're not prepared to embrace a regime in which U.S. institutions are going to be held to the standards up here if parts of the rest of the world are going to be in effect apply a weaker standard.

So we want to see a more level playing field globally in these things. And the other thing we want to make sure is that-- banks are building capital over time. So these rules are designed so that they are phased in over a long period of time so the understandable effort to make a safe financial system doesn't do damage to a recovery that's still weaker than it should be.

So we want to work out those two basic concerns about a level playing field and the growth effects. But you have very broad support among finance ministries and central banks and banks around the world for this new framework of much tougher capital rules on the largest banks.

STEVE LIESMAN: You have people like Spencer Bachus has complained recently that-- there's no comprehensive overall review of how much burden all the new regulations are putting on the banks as well as-- Jamie Dimon has spoken where's the comprehensive look at it. Have you finally sat back and looked at all of the different rules that are being put on the banks?

TIM GEITHNER: You know, they're both making important points although we're not going to agree on all the substance, which is we want to make sure as we build a more stable system we're looking comprehensively at the impact of all these things. And we're very supportive of that and want to make sure that happens.

But mostly what you're seeing is just, you know, understandable-- reluctance-- for people to embrace the tougher standards we think make sense. And you're seeing some Republicans-- push against those tough rules. You're seeing some banks raise the understandable concern, they want to make sure there's a level playing field globally. But we'll work that out.

STEVE LIESMAN: On the American Jobs Act what's the strategy now that the whole bill seems to have been turned down by the Senate?

TIM GEITHNER: Well, it wasn't turned down by the Senate, it's important to note. You know, you had-- a majority of senators support the act. You had all Republicans opposed to the act. And what the president's going to do, working with leadership is to try to maximize the chance we get the largest, most powerful set of measures to help growth and job creation as quickly as we can. And we want those done in the context of agreement on long-term reforms to bring down a deficit.

That growth now, jobs now, but tied to reforms to help restore some gravity to our fiscal position is the right strategy for the country right now. We don't want the politics to get in the way of that. So we know we have-- we think is a very good package of-- tax measures, investments and reforms. They've been very bipartisan in the past. We see no reason for that not to happen. And it's very important for people to recognize if it does not happen then the economy will be-- will be weaker and you're going to see more Americans out of work--

STEVE LIESMAN: But will you hive off the tax cuts from the spending?

TIM GEITHNER: Well, again we want something that's going to do as much for growth as we can, as much for job creation as we can. And the reason why we proposed a combination of tax cuts and investments and infrastructure and things like that is because those investments and infrastructure have very substantial positive affects on jobs creation and they're like a tax cut for businesses. Because what they do is they make the cost of getting your goods to market cheaper, makes it more efficient, it's good for the economy near term and long run.

STEVE LIESMAN: So, I know you don't want to talk about the markets so I have one final question. Are you concerned at all that by speaking out on Europe and saying-- you're going to be speaking forcefully in these meetings that you'll it's accused of meddling in European affairs and actually end up with worse results than you might otherwise get?

TIM GEITHNER: Absolutely not. The Europeans have asked us for advice. We do not want to see Europe weaken by a prolonged financial crisis. Through the IMF we have a direct stake in the choices they're making. And we're going to be as forceful and persuasive we can in not just encouraging them to move more forcefully, but making that-- more likely to work more effectively by making sure we're working with the rest of the world to reinforce what they're trying to do.

STEVE LIESMAN: Mr. Secretary, thank you for joining us this morning.

TIM GEITHNER: Good to see you, Steve.

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