Geithner's Wild 100-Day Ride
Timothy Geithner marks 100 days in office today, and few Treasury secretaries have had starts that were more eventful. Allan Dodds Frank grades the highlights and missteps.
If the stock market is your indicator of success, then Treasury Secretary Timothy Geithner must be doing something right, given the rally that has recently pushed the market into the black for the year.
Yet to me, Geithner’s first 100 days, a threshold we mark today, hardly provide enough time to discern fairly whether he has done anything right so far. He is faced with so many challenges, so many financial stalls to muck out, that it may be a long time before we can measure his results beyond his growing skill at projecting confidence. He showed political acumen in late March announcing that the public will share in the spoils the government will funnel to Wall Street. He called it PPIP, the “public private invest program.”
My view on Geithner’s opening foray is somewhat akin to Warren Buffett’s view of quarterly reports. We should not pay any attention to short-term results and concentrate on whether he operates by honest principles we believe are fair and good for the country.
Geithner comes to the great game with lots of skills and benefits. He has a background in international finance at Treasury and the International Monetary Fund, five years, two months as president and chief executive of the New York Federal Reserve and long-term student-mentor relationships with many of the Wall Street wise men who helped create the mess we are all in now.
Geithner was close to Robert Rubin, the Clinton-era Treasury secretary who subsequently chaired the Citigroup board as the “too big to fail” bank engaged in more and more risky and questionable behavior. He dined with Citi officials often (see Jo Becker & Gretchen Morgenson’s excellent New York Times article and Gary Weiss in the now-defunct Portfolio). So how will Geithner handle Citi this week if the stress tests for banks he has set up show that the government needs to pump more money into Citi? Will the government rollup of troubled assets just keep going without Geithner ever holding up to close inspection in public those responsible for costing the taxpayers billions of dollars?
Yes, the 48-year-old Treasury secretary works hard and yes, he is a quick study who recovers rapidly from his gaffes. The one that comes to mind I witnessed at the Council on Foreign Relations in New York March 25 when he attempted to duck a question about a top Chinese government banking official’s musing on the alleged need for a new global super reserve currency. Geithner had not read the Chinese governor’s remarks but was striving to be respectful, thoughtful, and open on the subject, three attributes that in general I believe we need to see more of from Treasury secretaries.
Still, he should have known that practically the first thing every Treasury secretary learns the hard way is that commenting on the dollar is a surefire way to roil the world’s currency markets. That, of course, is exactly what Geithner’s initial remarks did, until the end of the Q&A, when his friendly and perceptive questioner, former Deputy Treasury Secretary Roger Altman, salvaged the rookie’s mistake by asking Geithner for a clarification he knew would calm the currency markets almost instantaneously.
It was a moment that generated stories in The Wall Street Journal, the Financial Times and Bloomberg. Its significance to me, however, was different. It showed how the old guard is trying to guide the Treasury secretary and protect the status quo antebellum as much as possible.
While calling for financial reform during that speech, Geithner said: “To get through this, we need the private sector to take risks, and in order to do so, they need confidence about the rules of the game going forward.”
When examining the specifics of the Troubled Asset Relief Program and all the other Geithner proposals, just keep in mind that sentence about encouraging the private sector to take risks. I think under the Geithner regime it may turn out to mean repackaging the stuff taxpayers have already paid for, selling it to the private sector fat cats at a big discount and letting them once again reap immense profits by flipping cheap assets. The other place to watch will be Geithner’s efforts to provide “clean balance sheets” to the big banks and brokerages so investors will once again buy their stocks.
I think most important will be Geithner’s character. On that score, the lead up to his 100 days began badly. He got a pass during his confirmation on his tax withholding and failure to pay nanny taxes, which seemed inappropriate to me. My view has been that public officials of all stripes have been on indisputable notice that they are supposed to adhere to the law ever since Zoe Baird was disqualified to be attorney general in 1993 for her failure to pay taxes for her illegal alien nanny and chauffeur.
That brings me to the overriding question of whether Geithner will uphold the law or just try to keep the financial system cool by whatever means necessary.
In his first 100 days, the Treasury Secretary has said little publicly about the charge that his predecessor Henry Paulson and Federal Reserve Chairman Ben Bernanke deliberately excluded the Securities & Exchange Commission from the Bank of America-Merrill Lynch takeover discussions.
And Geithner has revealed little about his central role in the bailout of AIG last September. I want to hear him testify under oath about whether he knew on Day One that $85 billion for AIG was nowhere near enough. And if he knew or suspected that, why did he not say so then? Or if he did raise concerns in private at the New York Fed, why did he decide that the public did not need to know that, even as it was becoming the 79.9-percent owner of AIG?
He has to make a decision about whether government ownership in troubled banks, insurance companies, automobile manufacturers, and others somehow means it is OK to fail to disclose relevant facts to investors. He has to decide when accumulating power by fiat in the name of the financial rescue has to stand down in favor of the legislative process. At the Council on Foreign Relations, he said: “We came into this financial crisis as a country without the authority and without the tools we needed to contain the damage to the economy.” That may have been true, but it also was the justification Paulson and Bernanke used to ratify their own administrative decisions, such as allegedly ordering Bank of America CEO Kenneth Lewis not to disclose key information to investors.
So my view on Geithner’s opening foray is somewhat akin to Warren Buffett’s view of quarterly reports. We should not pay any attention to short-term results and concentrate on whether he operates by honest principles we believe are fair and good for the country.
What keeps nagging at me as I try to assess his accomplishments is what we do not know about all the private conversations he is having now, and has had over the years, with the core of Wall Street’s top leadership. These are the people the Treasury is bailing out in an effort to save us all from them. And it is important to know whether the financial establishment will be the first to benefit, not the average citizen, from whatever it is that Geithner and the rest of the Obama administration ultimately accomplish.
Allan Dodds Frank is a business investigative correspondent who specializes in white collar crime.