Is the 47 year old Timothy Geithner prepared for arguably Barack Obama’s most important appointment? The first decisions made by Mr. Geithner will clearly be crucial to the U.S.’s economic future, as Harvard economist Kenneth Rogoff emphasized, “the decisions that are going to be made in the first 100 days of this administration could have an imprint on the economy for three or four decades.” Man.. I hope Mr. Geithner exceeds expectations if his first decisions will affect the unborn grandchildren of my unborn children.
I am happy to report that I can at least sleep at night knowing that Geithner’s will need no introduction on Wall Street or in Washington. He has worked for the Treasury Department since 1988, and served directly under Robert Rubin (when he was Secretary) and Larry Summers (when he was Deputy Secretary) from 1999-2001. In the late 1990s he collaborated with Summers on the highly-successful, internationally-funded, $100 billion bailout of Brazil, South Korea, and Thailand; so he has 10+ years of experience for his new post as “Secretary of Baillouts” as the WSJ called it. He was Director of policy development and review department at the IMF, so we can assume he is well versed in the world’s exponential level of globalization and the affect the U.S. currency has on the world. Finally, he has been President of the New York Federal Reserve since 2003 and is Vice-President of the Federal Open Market Committee (FOMC).
Mr. Geithner role at the epicenter of the Wall Street crisis may raise eyebrows. How prepared the President of the New York Federal is to be Treasury Secretary can be seen in varying lights. At best, it has made him capable of reversing the financial toilet flush in the U.S. with his relationship with the crisis’ players and major events. At worst, he was a Wall Street watchdog who sat on the sidelines while financial institutions took bigger bites of risk than they could handle. Refuting the the latter assessment, Gary Weiss wrote “The Fed, despite its broad financial oversight, does not have authority over investment banks—either to audit their books or lend them money. The day-to-day task of overseeing investment banks falls mainly to the S.E.C.”
What we can judge is the rescue packages the New York Fed was involved in: Bear Stearns and AIG, and he was one of the fingers on the Government’s hand that smacked Lehman Brother’s.
The Bear Stearns negotiations were held in the Fed’s office where he represented New York taxpayers and served as a medium for Bear Stearns and JP Morgan. I’d rather not imagine what would have happened had the big Bear fallen. – point to him.
Mr. Geithner’s work on the AIG bailouts is a mixed bag. The Wall Street Journal described the original September 16th bailout package as ” rescue medicine (that) was killing the patient.” The WSJ article notes that the bailout would have forced the insurer to sell assets into weakness, pay back the loan with a high interest rate whether they used the money or not, and was drastically undersized. Even on the new AIG bailout plan the government is demanding a 79% equity stake. Do we really want the government to run another financial company after the Fannie Mae and Fredie Mac disaster? – minus one.
Finally, Geithner didn’t extend a hand to Lehman Brothers as it free-falled off the solvency cliff. Lehman’s chapter 11 filling it took over $600 billion of assets down the drain with it. When the Treasury and Fed was handing out money faster than it can be printed, why overlook Lehman Bros? – minus one.
Overall, Mr. Geithner’s scores a negative one, but clearly he believes in responding to the economic crisis with agressive government intervention, which brings a huge wave of confidence to the markets.
Timothy Geithner’s experience as VP at the FOMC is welcomed in his new role. The major issue that can be taken with his actions as VP is not being a dissenter in Bernanke’s sluggish reaction time in cutting the federal funds rate . Cramer, take it from here…
In His Own Words…
“What you want to do is design a system that doesn’t prevent people from losing money and making mistakes … because that is inevitable. What you want to do is make sure you run a system where the consequences of those mistakes are less damaging and consequential for the more prudent and for the economy as a whole. And that balance is very hard.”
– Timothy Geithner, July 2008
Mr. Geithner is undoubtedly qualified to be the new Treasury Secretary. He will be a stark contrast to Hank Paulson, he is a lifetime public servant, and has never been a wall street executive.
Larry Summers described Geithner by saying “the ego is disengaged, but he’s very comfortable with himself and very direct—not promoting himself, but just concerned with doing the right thing.”
Geithner faces gargantuan and unparalleled challenges to effectively implement the trillions of the treasury’s bailout dollars effectively and reform government regulations. I hope the WSJ headline for their article on Geithner and Summers – “Duo Has Proved More Pragmatic Than Ideological” will still be an apt description in the coming years. At least there is comfort in knowing that Timothy Geithner will avoid making the mistakes of Treasury Secretary Andrew Mellon (1921-1932) when he refused to lend money to banks during the Great Depression.