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Paulson and Geithner say complacency caused crisis

The US was unprepared for the 2007-2008 financial crisis, underestimated its seriousness and lagged in coming to grips with the damage, ex-Treasury chief Henry Paulson and current Treasury chief Tim Geithner said yesterday.

Speaking to the Financial Crisis Inquiry Commission, Geithner, who took over the Treasury in early 2009 after serving in the powerful position of New York Federal Reserve Bank president, said there had been widespread complacency in the financial system that left participants and regulators thinking they could weather any storm.

“If the government had moved more quickly to put in place better-designed constraints on risk-taking that captured where there was risk, the crisis could have been less severe, and if the government had moved more quickly to deal with the damage this would have been less severe,” he said.

Meanwhile, former Treasury chief Paulson said the US Congress hurt credit flows when it “stigmatised” the $700bn bank bail-out programme.

Paulson told the Financial Crisis Inquiry Commission that 2,000-3,000 banks should have held the government capital for three to five years, rather than rushing to repay it.

If the investments had been broader and for longer, he said, “that would have done far more than any stimulus programme to get the economy going again”.