Treasury chief wrestles with legacy amid Libor scandal, economic worries
July 27, 2012
Timothy Geithner finds the perception that he is “too close to Wall Street” so frustrating that, in an interview with Charlie Rose this week, the Treasury secretary set aside his usual measured demeanor to try to debunk what he says is an “urban myth.”
“I find that deeply offensive,” Geithner said. “I think it’s deeply unfair, unjustified.”
The secretary, who will wrap up a four-year tenure at the helm of Treasury in January, is struggling to shape his legacy as worries persist about the health of the economic recovery and a scandal over manipulation of the Libor interest rate gives fresh ammunition to critics who accuse him of coddling the financial sector.
Geithner, a former president of the Federal Reserve Bank of New York who served as a top lieutenant to then-Treasury Secretary Robert Rubin during the Clinton years, is President Obama’s longest-serving economic adviser.
When he chose Geithner for Treasury in 2008, Obama viewed him as essential to rescuing the economy from its worst crisis since the Great Depression. As Europe's debt crisis and a “fiscal cliff” standoff in Congress threaten to derail an already fragile economic recovery, all indications are that Obama has every bit as much confidence in Geithner as he did four years ago. Perhaps even more.
Indeed, when Geithner’s family had to move back to New York a year ago so his son could finish high school there, Obama went to lengths to persuade the secretary to stay on at Treasury and even made a special plea to Geithner’s wife to get her on board with the decision.
But throughout his tenure, Geithner has remained the ultimate insider, wielding huge clout within the administration, even as he has come under fire at times with members of Congress. Although he has a dark sense of humor that the president and his colleagues appreciate, Geithner is often reserved in public. He is far more in his element leading a meeting at Treasury or debating economic policy in the Oval Office than he is at playing the role of economic salesman on television or in the industrial heartland.
As much as he tried, he can’t seem to shake the perception that he has hewed too closely to Wall Street’s views in his policy stances on everything from housing to the Dodd-Frank regulatory reform legislation.
It is a perception that dates back to Geithner’s days at the New York Fed when he became a chief architect of the Troubled Asset Relief Program--the $700 billion bailout of the financial sector. The view has also been reinforced by a series of books on the Obama economic team, including a new one called Bailout, by Neil Barofsky, the former TARP watchdog, and another one, The Escape Artists, released earlier this year, by New Republic Editor Noam Scheiber.
The criticism has an even greater sting to it for Geithner at a time when the Libor case and a series of other scandals have heightened the public’s distaste for Wall Street and Too Big to Fail Banks.
In the Charlie Rose interview, Geithner lamented that many people believe that he arrived at Treasury via Goldman Sachs, the Wall Street firm once headed by Rubin, the secretary’s predecessor and former mentor. In fact, Geithner has spent almost all of his career in public service and has never worked for a private bank.
Lee Sachs, a former top adviser to Geithner at Treasury who is now chief executive at Alliance Partners, said that the secretary has never been guided by anything but a desire to do what was needed to boost jobs growth and lift the economy.
“Every single decision that we made was viewed through the lens of what’s best for Main Street, not what’s best for Wall Street,” Sachs said.
“When you’re in an environment where the economy is shrinking at a 9 percent annual rate, where the country is losing 800,000 jobs a month, where businesses and households and … municipalities can’t borrow, the best thing you can do for Main Street is to put out those financial fires,” he added. “If we hadn’t done that, millions and millions more people would be out of their homes.”
Indeed, many economists believe that Geithner’s instincts as a financial firefighter served the economy well in the aftermath of the September 2008 collapse of Lehman Brothers.
“I see Tim Geithner’s strengths and weaknesses as being two sides of the same coin,” said William Galston, a scholar at the Brookings Institution and a former domestic policy adviser to President Clinton. “He understands how Wall Street and the banking systems operate. That kind of intuitive, experience-based feel served the administration reasonably well during the peak moments of the crisis.”
But Galston added, “That very same experience and outlook blinded him to some of the other dimensions of that crisis and its consequences, including the sense of outrage that many Americans felt.”
Ross Baker, a political-science professor at Rutgers University, agreed that Geithner’s tenure will be remembered as a complicated one.
“History is going to be wrestling with Tim Geithner’s role for years,” Baker said.
But even before history renders its judgment, either Obama or Mitt Romney will face an important decision in a few months when one of them will need to pick a successor to Geithner.
Rubin, with his unflappable manner and Goldman Sachs seasoning, was once seen as a model for many Democrats and even some Republicans of a modern-era Treasury secretary. Nonetheless, President George W. Bush departed from that model, naming former captains of industry Paul O’Neill and John Snow as his first two Treasury secretaries before turning later to former Goldman Sachs chief executive Henry Paulson.
Rubin was succeeded by his deputy, Lawrence Summers, a Harvard economist who had also served as chief economist at the World Bank.
Few names have surfaced yet as potential Geithner replacements in either a second Obama administration or a Romney administration.
But The New York Times has mentioned Gary Gensler, chairman of the Commodity Futures Trading Commission, as someone who could fit the bill. Other names tossed around should Obama win reelection include Princeton University professor Alan Blinder and former FDIC Chairman Sheila Bair--although Bair’s odds of getting the job might be slim because she has often clashed with members of the Obama administration, including Geithner.
Potential Republican picks could include Glenn Hubbard, a former White House economist under Bush and a current adviser to Romney, or Phil Gramm, the voluble former senator from Texas.
July 27, 2012