Geithner Sees ‘War of Attrition’ Against Financial Overhaul

May 25, 2011, 12:20 PM EDT By Ian Katz and Cheyenne Hopkins

(Updates with comment on debt ceiling in fifth paragraph.)

May 25 (Bloomberg) -- U.S. Treasury Secretary Timothy F. Geithner said some lawmakers and bankers are waging a “war of attrition” against efforts to strengthen regulation of the financial system.

“You’re seeing some people run a war of attrition against the reform act,” Geithner said at an event today in Washington, without identifying the people. “They’re trying to starve the agencies of funding so they can’t enforce protections for investors.”

Geithner also said opponents of the Obama administration are trying to block presidential appointments to regulatory agencies “as a way to get leverage over the outcome, and they’re trying to slow down so that they can weaken over time the thrust” of the Dodd-Frank financial overhaul law. “We’re not going to let that happen.”

Republican lawmakers are opposing the nomination of Peter Diamond to the Federal Reserve Board. The White House renominated Diamond, a Nobel Prize winner, in January, marking a third try at confirmation after the Senate adjourned in December without approving him. Diamond’s initial candidacy was returned to the White House in August under a procedural objection.

On negotiations to raise the $14.3 trillion federal debt ceiling, Geithner said Congress will ultimately “do the right thing” and raise the limit. Some lawmakers are using the talks for political posturing, he said.

‘All Theater’

“Right now this is all theater,” Geithner said. “I think the vast bulk of Congress understands it completely. I think there are some people pretending not to understand, who think there is leverage for them in threatening default. I don’t understand that negotiating position.” Geithner has taken measures to stay below the debt limit until Aug. 2.

This month, 44 Senate Republicans said they would not confirm a director for the Consumer Financial Protection Bureau without changes to its structure and funding. President Barack Obama appointed Elizabeth Warren, a Harvard University law professor, as an adviser to set up the bureau after then-Senate Banking Committee Chairman Christopher Dodd, a Connecticut Democrat, said Republican opposition would prevent her from winning Senate confirmation.

“We want to put up people who can be confirmed,” Geithner said. “We want to put up talented people who can do those jobs. Finding the intersection between those two things has become difficult because people are less willing to come and Congress is proving itself unwilling to confirm Nobel Prize-winning economists.”

‘Dark Forces’

Asked by a moderator at the breakfast held by Politico to identify the “mysterious forces” working against the administration, Geithner said, smiling, “dark forces, I would say.”

On the search for a successor to Dominique Strauss-Kahn to lead the International Monetary Fund, Geithner said both French Finance Minister Christine Lagarde and Mexican central bank Governor Agustin Carstens are “very talented” candidates.

The U.S., the largest IMF shareholder, will play a “significant” role in the choice to replace Strauss-Kahn, a former French finance minister who resigned after his arrest on charges of attempted rape and sexual assault.

Lagarde “is an exceptionally capable person, an excellent mix of financial economic knowledge, talent and the kind of political skill you need to navigate this context,” Geithner said. Carstens “has that as well.”

Lagarde today declared her candidacy, saying she should be judged on the basis of experience rather than nationality. A European has held the IMF managing directorship since its founding at the end of World War II, while an American has always headed the World Bank.

The IMF executive directors representing Brazil, Russia, India, China and South Africa united yesterday to protest publicly the presumption that the fund’s next chief once again be a European.

--With assistance from Sandrine Rastello and James Tyson in Washington. Editors: Chris Wellisz, Carlos Torres

To contact the reporters on this story: Ian Katz in Washington at ikatz2@bloomberg.net; Cheyenne Hopkins in Washington at Chopkins19@bloomberg.net.

To contact the editor responsible for this story: Chris Wellisz at cwellisz@bloomberg.net

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