Wrong Man for the Job
Tim Geithner may not have paid all of his taxes, but the real reason he shouldn’t be confirmed as Treasury secretary Monday is that he let Lehman implode, gave the banks free money, and Wall Street loves him.
Despite some static over whether Tim Geithner filed the proper tax returns, he will be easily confirmed as Treasury secretary. But back in mid-September, as president of the New York Fed, Geithner proved to me why he shouldn't be.
Back then, Lehman Brothers was in bad trouble, teetering on the verge of insolvency. Geithner and his sidekick, then-Treasury secretary Hank Paulson, put the heads of all the big Wall Street firms in a room and ordered them to come up with a plan to save Lehman.
For the next few hours, the capos of these big firms did something unusual—they cooperated. By the end of the Saturday, a draft plan was on the table to buy all of Lehman's bad debt and arrange a sale to Barclays PLC, a giant bank. Letting Lehman implode, they knew, would set off a global shock wave of mass selling, and a further lockdown of the credit markets.
The large firms (or what’s left of them) and the nation's big banks don't need an advocate in the White House or someone who’s willing to hand over billions—they need a tough cop.
Larry Fink, the CEO of the giant money-management firm BlackRock and one of the smartest men in the financial business, told me he decided to leave New York to meet clients in Asia that weekend because he believed that a bailout was the only answer—in other words, Paulson and Geithner wouldn't allow Lehman to fail because if they did "it would be Armageddon."
Well as we all know, Lehman did fail. In the end, Paulson and Geithner did next to nothing to prop up the ailing 158-year-old investment bank with a balance sheet of around $500 billion and trading partners across the globe. And the next day, one of the worst weeks in financial-market history began.
To be sure, Tim Geithner can’t be held primarily responsible for all of the bad policy decisions that led to Lehman falling into liquidation. Nor can he, as president of the New York Fed, be solely to blame for changing the bailout plan known as the TARP from one in which bad assets were purchased from banks into one in which the banks were handed a ton of free money that they aren't actually lending to businesses and consumers. But he was part of the team that made a bad situation even worse, and for that he shouldn't be confirmed as Treasury secretary.
I know what you're saying: "Well, if not Geithner who else is qualified?" And "Doesn't he have the confidence of Wall Street?" To the first question, there are plenty of qualified people, including ex-Treasury Secretary Larry Summers—the former Harvard president, longtime economist, and one of the smartest money men on the planet, who would have been the Treasury nominee had he not made some dumb comments at Harvard about whether women are as smart as men in math. (Thankfully, Summers will still be part of the administration—he is slated to run the president's National Economic Council.)
The second question is actually easier to answer. For my money—and yours—the last guy you want to be working at the Treasury in these times of multi-billion-dollar bailouts is someone Wall Street actually likes. The large firms (or what’s left of them) and the nation's big banks don't need an advocate in the White House or someone who’s willing to hand over billions—they need a tough cop. And they need someone who fully understood what Larry Fink did during that fateful weekend in mid-September: That letting Lehman fail would lead to financial Armageddon. That’s not Tim Geithner.
Charles Gasparino appears as a daily member of CNBC's ensemble. Gasparino, in his role as on-air Editor, provides reports based on his reporting throughout the day and has broken some of the biggest stories affecting the financial markets in recent months. He is also a columnist for Trader Monthly Magazine, and a freelance writer for the New York Post, Forbes and other publications.